When you're applying for a home loan in Mandurah, most people focus on finding the right interest rate and loan amount. But what happens after settlement is just as important. The way you structure your repayments can make a massive difference to how much you pay over the life of your loan.
At G&T Finance, we help clients access home loan options from banks and lenders across Australia, and we often see borrowers missing out on opportunities to reduce their debt faster. Let's explore some practical repayment strategies that could work for your financial situation.
Understanding Your Interest Rate Impact
Whether you choose a variable interest rate or fixed interest rate home loan, every dollar you pay above the minimum repayment goes directly towards reducing your principal. This means less interest charged over time.
For calculating home loan repayments, even small increases can create significant savings. If you're paying off a $400,000 loan at a 6% home loan interest rate over 30 years, increasing your repayments by just $100 per month could save you over $30,000 in interest and reduce your loan term by around 4 years.
Repayment Strategy Options
1. Weekly or Fortnightly Repayments
Instead of monthly repayments, consider switching to fortnightly payments. You'll make 26 fortnightly payments per year (equivalent to 13 monthly payments), which means one extra month's payment annually without really feeling the pinch.
2. Offset Account Benefits
An offset account can be a powerful tool for reducing interest charges. The money in your offset account reduces the loan amount that interest is calculated on. If you have $20,000 in your offset account against a $400,000 loan, you only pay interest on $380,000.
3. Using Variable Home Loan Rates to Your Advantage
When interest rate discounts are available or rates drop, don't just enjoy the lower repayments. Keep paying the same amount you were before - the extra goes straight towards your principal.
4. Reviewing Your Loan Regularly
The property market and your borrowing capacity can change over time. Regular reviews might reveal opportunities to:
- Refinance to a lower rate
- Remove lenders mortgage insurance (LMI) if your loan to value ratio (LVR) has improved
- Access better home loan options that weren't available when you first bought
Making Extra Repayments Work for You
Before making extra repayments, consider your complete financial picture. If you have high-interest debt like credit cards, pay those off first. Also, ensure you have an emergency fund covering 3-6 months of expenses.
When you're ready to make extra repayments:
- Direct them to your principal, not into redraw facilities where you might be tempted to use them
- Consider splitting your loan between fixed and variable portions
- Use any windfalls like tax returns, bonuses, or inheritance strategically
Planning for Rate Changes
Whether you have variable interest rates or are coming off a fixed period, building a buffer into your budget helps. When rates were historically low, some borrowers structured their finances around those rates. As rates change, having strategies in place keeps you on track.
Getting Professional Guidance
Every borrower's situation is different. What works for your neighbour in Mandurah might not suit your circumstances. Factors like your loan structure, employment type, family situation, and long-term goals all influence which repayment strategies make sense.
When you get pre-approved for a home loan or review your existing loan, discussing repayment strategies should be part of the conversation. The application process is also an ideal time to consider features like offset accounts or flexible repayment options.
Your Next Steps
Whether you're buying a home for the first time or reviewing your current home loan application strategy, having a clear repayment plan can save you significant money. The key is finding strategies that fit your lifestyle and financial goals.
Remember, even small changes to your repayment approach can compound over time. The earlier you start, the more impact these strategies can have on reducing your debt and building your home equity.
Call one of our team or book an appointment at a time that works for you. We'll review your current situation and explore repayment strategies that could work for your circumstances.
