The 2016 Consensus reported that 31% of Australians owned a property outright, and 34.5% had a home loan, the rest were renting. This article will give you tips to move faster out of those with a home loan into the group that own their property outright.
Before you even buy a new home, you should make sure that you are going to buy a property within your means. This does not only mean that you will be able to afford the home loan, but that you will also will be able to afford all your other debt as well as being able to save. It is important to save around three months of your mortgage payments just in case you lose your job, or for some other reason you struggle to keep ahead with your payments. Thereby you can limit your risk of defaulting.
Stay motivated, in control and think strategy
Once you are ready, and brought your home, there are some tricks that can be used to speed you your home ownership and in the process save you thousands. But if you have started with an unrealistic budget, it will be extremely difficult.
Instead of paying monthly – pay fortnightly
An effective strategy to accelerate your home ownership is to increase your repayment frequency. This you can do with paying off your home loan in repayment frequency of fortnightly (or if possible weekly) repayments, as an alternative of making monthly payments.
If you choose to make your payments fortnightly, meaning making half of your payment every fortnight, you will be paying an extra month’s payment each year. Not only will you pay your loan off faster, but by doing that you will save on interest changes.
The same principle applies to weekly payments, but there you could save even more and pay the loan off even faster.
To see the benefits of paying off weekly or fortnightly, use any of the online mortgage calculators available. You will be amased about of years you will be able to shave off your home loan. Either way, to help you organise yourself, you could set up a direct debit order from your bank account. Thereby you can schedule the payment to take place weekly or fortnightly.
Pay a bit more than you should
Another strategy is to increase the minimum account your need to pay. This does not need to be much. You only need to add an extra $50 each month to help you to reach your homeownership goal faster, but also save you a lot in interest. The key here is budgeting. You need to be realistic by analyses your spending to see if you can afford to put more towards your home loan each month.
This strategy also implies that you need to reduce your expenses and increase your income. Doing after hour gigs, like DJ’ing, or designing greeting cards, could bring some extra cash, which you can add to your home loan.
If you combine the first strategy with this one, you could save even more and fast paste your repayment period even more.
Setting up a home loan offset account
A very useful strategy to save on interest is by setting up a mortgage-offset account. This as you will be able to use your savings to offset the loan amount. For example, if your loan amount is $3000 000, and you have a balance of $50 000 in your offset account, then you will only need to pay interest on $250 000. However, the real benefit of this type of account is the more savings you have, the faster you can pay off your loan and the more you will save on interest.
Make a lump sum payment when you can
The strategy of making a lump sum payment could fast track your home ownership. In fact, if you do this in the early stages of your loan even better.
For instance, let’s assume you receive an inheritance or a bonus at the end of the year. If you take that amount and add it as a lump sum payment to your loan you can reap the benefits. Using this example, you have a loan of $400 000, over 25 years the total amount will be $745 500, if the monthly payments are $2 485. But if you make a lump sum payment of $40 000 received as inheritance, then you can reduce the loan by three years and save yourself $70000 in interest.
20 or 30 years are a long time, and many things can change – interest rates included. If the interest rates have dropped since you signed your home loan agreement, you might want to switch. However, this might not be possible, as it will depend on the type of loan agreement you have signed. For instance, with a variable rate loan you can refinance your home loan. To check what you are not paying on old interest rates, you have speak to your broker.
By having your strategies in place and you know that you are within your budget, you can speed up your home loan payments in half the time. But you need to remain disciple at all times. In the end, the reward that you will be getting is not only being mortgage free, but you can literary save thousands in interest. In addition, you could combine some of these strategies to accelerate your home ownership even more. That all said, it does not mean that all of these strategies will be feasible for you. If you have fixed-rate loans for example, then you will not be able to make lump sum payments without being penalised. But with a variable-rate loan, you would be allowed to have an offset account. Speak to your broker about guiding you to your home ownership. And keep in mind, that your income, the location of your property, your other debt and your goals and values will all be factors that you need to take into account as well.