Make loans child’s play
Take advantage of low interest rates and wipe years off your mortgage,
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.