Make loans child’s play

Take ad­van­tage of low in­ter­est rates and wipe years off your mort­gage,

Townsville Bulletin - - NEWS - writes So­phie Elsworth

PLAY­ING around with your home loan is one of the smartest things you can do while in­ter­est rates re­main at record lows.

Putting it high on the pri­or­ity list can make a world of dif­fer­ence. It can make you tens of thou­sands of dol­lars bet­ter off and leave you mort­gage- free years ear­lier. So for bor­row­ers with a lit­tle bit of ex­tra cash, or re­solve to save long- term, now is the time to take ad­van­tage.

HOW TO GET AHEAD

It’s as­tound­ing how much head­way you can make on your home loan by tip­ping in some ex­tra funds.

The Re­serve Bank of Aus­tralia be­gan its cost- cut­ting mis­sion in Novem­ber 2011 and since then it has dropped the cash rate 10 times, from 4.75 per cent to a record low of 2 per cent.

It meets again to­mor­row and it’s widely tipped the cash rate will stay on hold.

Data from fi­nan­cial com­par­i­son site Fin­der. com. au shows bor­row­ers with a stan­dard $ 300,000, 30- year home loan who kept their mort­gage re­pay­ments at the av­er­age stan­dard vari­able rate of 7.8 per cent in 2011, or $ 2160 a month, would now be an ex­tra $ 13,230 ahead on their loan.

They would also have saved about $ 1664 in in­ter­est.

This is be­cause, on the same loan to­day at the av­er­age stan­dard vari­able rate of 5.4 per cent, the min­i­mum monthly re­pay­ments are $ 1685.

GET STARTED

There’s no rea­son you can’t take ad­van­tage of low in­ter­est rates now.

Cast a mag­ni­fy­ing glass over your loan, find out the in­ter­est rate on your mort­gage and look at the fre­quency of your re­pay­ments.

If you don’t know the finer de­tails, call your bank.

The av­er­age stan­dard vari­able rate on a $ 300,000 30year loan may be 5.4 per cent, but there are many deals out there – both fixed and vari­able – that have a “four” in front.

If yours doesn’t start with a four you need to do some­thing about it.

PAY AN EX­TRA $ 20, $ 50 OR $ 100 PER WEEK

For bor­row­ers who only make the min­i­mum monthly re­pay­ments on their mort­gage, their fi­nan­cial in­sti­tu­tion will au­to­mat­i­cally drop their re­pay­ments when rates do fall.

By keep­ing your re­pay­ments higher than the min­i­mum level you can quickly build up a fat buf­fer. Bor­row­ers have al­ready en­joyed two cash rate drops this year to­talling 50 ba­sis points, leav­ing some­one on a $ 300,000 30- year loan with an ad­di­tional $ 94 in their pock­ets if their len­der passed on the full cuts.

By adding an ad­di­tional $ 20 per week on the re­pay­ments you could pay off the loan three years and one month sooner and save more than $ 37,000 in in­ter­est costs.

An ad­di­tional $ 50 a week could re­duce the loan term by six years and seven months and save you al­most $ 78,000 in in­ter­est charges.

FIND EX­TRA MONEY

Fin­der. com. au spokes­woman Michelle Hutchi­son says cut­ting out un­nec­es­sary costs can help you make a dent in your loan.

Tax time is also ap­proach­ing and mil­lion of Aus­tralians will soon be lodg­ing their re­turns.

Spokes­woman for Mort­gage Choice Jes­sica Darn­brough says it makes sense to put any ex­tra cash on to your home loan. “If you have a wind­fall put it on your mort­gage,” she says.

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