Are you struggling with the thought of having a huge debt over 30 years? Worried about the interest rate rises? Here are three questions to ask yourself about your home loan. 

Question 1 - How much could you be saving on your home loan, by making extra repayments? 

Having a huge repayment taking up majority of your pay can be daunting, and can make budgeting tight, but by even making an additional payment of $150 per month on top of your minimum repayments, can help you pay off your loan faster, and save you money in the long term. The extra repayments go towards your loan principle, and not making extra interest repayments. 

Let me explain, we will use an example loan scenario. 

Example Scenario - Your current loan amount is $300,000 with a variable rate at 5%. You are making monthly P&I repayments over 30 years.

If you were to make an additional repayment of $150 per month on top of your schedule repayment ($1,760.46) and continued to make additional repayments of $150 per month for the remainder of your loan term, you would have saved $55,603.54 of interest and paid of your loan in full 5 years earlier than planned!!

Question 2 – Do you have an offset account or redraw facility? 

These two features can help save you interest and access any funds if need be. I’ll give you a basic summary of the two.

An offset account is like a transaction account, but the balance is 100% offset against your mortgage.

Let me elaborate – If your loan amount is $300,000 but you have $50,000 in an offset account, you will only be paying interest on the balance of your loan, which is $250,000. (Loan limit – offset balance = loan balance)

A redraw facility stores your extra repayments you’ve make onto your loan and can be withdrawn if need be. You will be paying interest on the balance of your loan.

If your loan amount is $300,000 and have $5,500 available in redraw, you balance will be $294,500. (Loan limit – available redraw = loan balance)

Click the links for an offset account and a redraw facility if you would like more detail.

Question 3 – What is your current repayment frequency?

If you are currently making monthly repayments - listen up! Most home loans are automatically set to monthly repayments if not requested otherwise, but if the lender will allow you to, change to either weekly or fortnightly repayments. Whys this? Because interest is calculated daily, these smaller but more frequent repayments could save you interest over the life of your loan.

Have more questions? Contact Grace Loans at (02) 4905 0250, or book an appointment with Beth by clicking the link here. 

 -E