4 Simple Ways to Save Thousands on Your Home Loan

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When you take out a home loan, the amount of interest you pay adds up over the life of the loan. In fact, if you take the full 25 years of the loan, it can almost double the principal amount – i.e. the amount you borrowed.

But there are ways to cut the cost of interest if you’re savvy about it.

1. Pay your loan off faster

This may sound obvious, but sometimes people underestimate just how much you can save by doing this. The Yellow Brick Road Extra Repayment Calculator shows that on a $400,000 home loan, paying an additional $250 per month would mean:

• You save almost $52,000
• You pay off the loan 5 years and 7 months earlier.

Think you can’t afford it? Perhaps you can, with a bit of belt-tightening.

That additional repayment works out to just over $8 per day. If two people in your household are buying coffee each day, you could ditch the coffee and find the funds for your extra payments.

The results from this calculator are an indication only. The results do not represent either quotes or pre-qualifications for a loan. The specific details of your loan will be provided to you in your loan contract. It is advised that you obtain independent legal and/or financial advice before taking out a loan.

Important information
These calculations do not take into account any fees, charges, goals or objectives. The results provided by these calculators are an approximate guide only. These calculators, or the results generated, do not constitute any agreement by us to provide credit assistance. Applications are subject to normal lending guidelines.

2. Get a better interest rate

Home loans may be long-term debt, but they shouldn’t be set and forgotten. Lenders change their interest rates and loan terms over time, sometimes outside of the Reserve Bank’s interest rate cycles.

And that’s assuming you got the best rate possible in the first place – not everyone shops around as much as they could.

All of this means you should check in with your local mortgage broker to see if you can get a better rate. Refinancing could save you thousands over the life of the loan.

On the loan mentioned above, you’d save $33,683.69 by moving from an interest rate of 4.04% p.a. to the Yellow Brick Road Rate Smasher at 3.63% p.a.

Plus, you’d be paying almost $100 less as the minimum repayment each month. That’s money you could either add to your household budget, or ideally, pay off as an additional amount.

3. Combine no. 1 and no. 2 … and turbocharge your savings!

If you get a better interest rate as well as make additional repayments, you can save serious money. We’ve used the Yellow Brick Road Compare Loan Repayments calculator to run two scenarios.

The blue bar shows what would happen if you paid the loan off five years faster (by making extra repayments), as well as moving to a lower rate.

4. Use offset or redraw facilities

These work in slightly different ways and have the same effect: they reduce the amount that your interest is being calculated.

If you think about it, 4% of $100,000 is much less than 4% of $150,000. So, you want to be paying interest on a smaller principal amount.

Redraw – this lets you access any additional funds you’ve paid into a home loan, above the minimum repayment.

For instance, if your minimum monthly repayment is $2,100 and you choose to pay $3,000 per month, after 3 months, you will have paid an additional $2,700 into the loan. This amount can then be “redrawn” if you need to access it in the future.

Offset – this is an account where the balance “offsets” the interest charged on your linked mortgage account. For instance, if you have $10,000 in an offset and $200,000 on your loan, you only pay interest on the equivalent of $190,000.

This cuts out the middle man in the redraw scenario, by making the funds available in the nominated bank account straight away.

There you have it: four different options to get ahead and make more of your home loan. If you want to know more, talk to us.

Looking for the best mortgage broker in Windsor that specialises in home loans and financial services? Contact Yellow Brick Road Windsor today!

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