*Assuming an interest rate of 2.6% p.a.
Making additional repayments is one real and powerful way to save money in interest over the life of your loan.
If you’re after flexibility, look for a home loan with an offset account attached. You can make an offset account work like a savings account, sitting in the background saving you money.
You can deposit money into, and withdraw funds from, your offset account at any time, so you can use it like a debit card. However, all the money in your offset account reduces the amount of interest you pay on the principal of your loan. All the while money sits in your offset account, it offsets your home loan.
For example, if you have a mortgage of $500,000 but have $20,000 in your offset account, you’ll only pay interest on $480,000. If you use your offset account to have your wages paid into, and park any other savings in there too, the amount you could save adds up into the thousands over the years.
No loan break costs
One of the best ways to keep your mortgage costs low is to keep on top of changing interest rates and be prepared to refinance with another lender or renegotiate with your current lender to potentially save a lot of money.
Variable-rate home loans are generally very flexible and there are no penalties for breaking the loan agreement. Fixed-rate loans, on the other hand, lock you in for a set period. If you break the contract early, you may be liable to pay early exit fees, which can be very costly and can add up to thousands of dollars depending on the time left to run.
Avoiding break costs gives you the flexibility to refinance your loan to a better interest rate at frequent intervals and gain access to useful features not present on your current mortgage. This could save you thousands by ensuring you’re always taking advantage of the cheapest interest rates and best features on offer.
Think before you redraw
Some loans offer the ability to redraw any additional repayments you’ve made on your loan in the form of a lump sum. This may be because you want to renovate your kitchen – or suddenly need a new car. Although using the additional amount you’ve paid into your loan may be a cheap option to get hold of a lump sum fast, it does mean you’ll again extend the life of your loan and so lose any interest savings you’ve built up.