If you have a variable home loan, you’ll be celebrating the fact that the Reserve Bank of Australia has recently cut the cash rate, as well as the fact that the RBA Governor, Glenn Stevens, has stated that the Australian economy is suited to continuing low rates for some time.
ANZ Chief Economist, Warren Hogan, said that Australians have more disposable income available now than they have for many years, but many are taking advantage of the situation by paying off their mortgage’s faster. Around three-quarters of those recently surveyed are, on average, seven repayments ahead on their home loans, and over half of them said they planned to keep their repayments at the same level for the foreseeable future.
So, here’s your chance to be mortgage free as soon as possible.
It’s a pretty simple equation – the more you put into your mortgage the more your home loan will reduce. The more it reduces, the less interest you pay. And the less interest you pay, the sooner you can pay your mortgage off.
If you can, it’s wise to continue to pay the same amount per repayment as you did two years ago – in other words, if your bank lowers your interest rates, you continue to pay the larger amount.
If you have an automatic debit in place, you can either contact them to see if you can fix a repayment amount, or make sure you add the extra amount every month.
If any extra money comes in, that’s even better. The more you can put on your mortgage, the more it will help – even if it’s a few hundred dollars here and there, it all adds up.
Do your home loan sums
Let’s say that you have a $300,000, 30-year loan at 5.08% p.a. interest. Your repayments are $1,625 a month. By increasing your repayments by just $100 a month, you can pay off your loan more than three and a half years sooner and save $42,000 in interest.
It gets better – if you can increase your payments by another $100 a month, and your mortgage could be paid in full after just 23 years, with interest savings of more than $73,000.
Another way to reduce your mortgage is to make repayments more often – if your repayments are monthly, make them fortnightly. There are 26 fortnight’s in a year, but only 12 months, so you’ll effectively be paying 13 repayments per year.
Historic lows = great opportunity
The General Manager of Home Loans at the Commonwealth Bank, Dan Higgins, says that “with historically low interest rates, it’s good to see many borrowers are taking the opportunity to get their finances in order, pay down debt and give themselves more room to move.”
Are you already reducing your home loan? If not, now’s the time – and it’s easier than you think. Call us now to find out how.