Repaying Your Home Loan

Guide to Repaying Your Home Loan

Before you think you don’t need someone to tell you how to repay your home loan, think about what it really means to apply for a loan, pay your deposit, set up your direct debit and then see that money transferred out of your account each and every month for the next 30 years. Over the next 30 years you’re likely to go from a young and carefree couple to a family waiting for their kids to leave the nest; from a young entrepreneur, to passing the family business on to the next generation; you’ll go from Berocca to blood pressure medicines and from stilettos to slippers.

Featured Illawarra Home Loan

Apply for Illawarra Home Loans Bank Beater Home Loan and get a low variable rate, beaten down even further by 0.05% p.a. after 5 years, plus no application fee, no valuation and lender\s legal fee.

• Interest Rate of 6.07%
• Comparison Rate of 6.35%
• Application Fee of $0
• Maximum LVR With LMI: 90%
• Minimum Borrowing: $250,000
• Maximum Borrowing: $1,000,000

Enquire about the Illawarra Home Loans Bank Beater Home Loan terms and conditions

So wouldn’t you like to know more about how to pay off your home loan before retirement age? Wouldn’t you rather work smarter at paying off your loan instead of harder? Of course you would, which is why we have all the answers and information you need to help you repay your home loan more easily, without compromising your lifestyle – on the contrary, you’ll be able to enjoy the lifestyle you’ve always wanted with smarter money management and investment opportunities which come with a well managed mortgage.

What is the secret to repaying my home loan sooner?

It should be a relief to every Australian mortgage holder that there really is no secret to repaying your home loan sooner. There is no magic formula or coveted repayment amount, repaying your home loan faster is as simple as just making the repayments. The way you can maximise those repayments to put you on the fast track to repaying your mortgage sooner is no secret either because there are loan features and budgeting alternatives which are available to everyone, if they just know how.

However, in uncovering the best home loan repayment strategies you must also be aware of some of the worst and while making additional repayments can save you tens of thousands of dollars in interest, refinancing can cost you just as much, while inadvertently extending the term of your loan back into the blood pressure medicine and slippers era.

Top Australian Home Loans

Home Loan	Details	Interest Rate (p.a.)	Comp Rate^ (p.a.)	App Fee / Ongoing Fee	Max LVR	Min & Max Borrowing
State Custodians Mortgage Company Standard Variable Offset Loan	Awarded the 2011 Non bank Lender of the Year this feature-packed loan rewards customers with a bonus rate drop of 0.20% after 5 years.	6.02%	6.23%	$0 / $345	95%	$150,000 / $1,000,000
Loans.com.au – Dream Loan Express​ – 2 Year Fixed Rate	A home loan offer with $0 application fee and one of the lowest fixed rate options in market.	5.68%	6.07%	$0 / $0	80%	$50,000 / $750,000
Illawarra Home Loans Bank Beater Home Loan	A low variable rate, beaten down even further by 0.05% p.a. after 5 years.	6.07%	6.35%	$0 / $345	90%	$250,000 / $1,000,000
Loans.com.au – Dream Loan Express – Variable Home Loan (80.01% -95%)	A home loan offer with a $0 application fee and one of the lowest available home loan interest rates.	6.20%	6.22%	$0 / $0	80.01% – 95%	$50,000 / $750,000
State Custodians Mortgage Company Breathe Easy Offset Loan	Awarded Best Non Bank Basic Variable July 2011 this fantastic loan rewards customers with no fees and a range of features to keep repayments flexible.	6.27%	6.18%	$0 / $0	95%	$150,000 / $1,000,000
Super Rate Fee Saver Home Loan	Fantastic rate and no fees backed by competitive features including free redraws, salary crediting and flexible repayments. Perfect for first home buyer or upgrader.	6.25%		$0 / $0	95%	$50,000 / $2,000,000
Easy Street Honeymoon Home Loan Special	Save money with a no application fee and a low interest rate.	5.89%	6.56%	$500 / $0	95%	$100,000 / $2,500,000
UBank UHomeLoan (Variable Rate)	One of the market leading variable interest rates. The maximum loan amount needs to be 80% of the property value.	5.83%	5.83%	$0 / $0	80%	$100,000 / $1,000,000

What are the best ways to save on my mortgage?

Making savings on your home loan can be as easy as following one or all of these steps to making savings on your mortgage:

1 – Paying more each month

When you pay more than the minimum loan repayment amount those additional repayments come directly off of the principal loan amount, whereas your standard monthly repayment will be made up primarily of interest charges. Therefore, when you get into the habit of paying more each month or fortnight, you can reduce the term of your loan and reduce the amount of interest you will be paying back on top of your principal.

For example, if you had a $400,000 home loan on a standard variable interest rate package of 8.5% which allowed you to make additional repayments for free, you could pay an extra $100 each fortnight you would cut four and a half years from your 25 year loan term. You’d also be saving $119,000 in interest.

If you get into this habit, especially in the early years of your home loan, you can make significant savings of both time and money.

2 – Add a professional package

Professional package home loans are not just for professionals, but are available to most borrowers, and the features vary depending on the amount you have borrowed. A professional package often adds features to your home loan account such as a discounted interest rate which could be as much as 0.7% less than the standard interest rate. Professional packages may also entitle you to fee free transaction accounts or a fee waiver on a credit card for the life of your home loan. You can also often enjoy discounted insurance and financial advice, depending on the other services offered by your lender or their financial group.

Just make sure that the annual fee for the professional package is outweighed by the savings you will make in interest. You may even be able to negotiate with your lender for a fee waiver here as well.

3 – Make fortnightly repayments

Making your repayments fortnightly instead of monthly gives you more opportunities to make payments to your loan, and therefore you can again save time and money with your mortgage. This is because each month has a different number of weeks and days, but in making repayments fortnightly, you’ll pay the equivalent of 13 months as each year has 26 fortnights but only 12 months.

Just be aware of additional fees to allow you to switch to fortnightly repayments as you could be paying an extra $300 a year. Therefore, work out how long it will take for you to break even, where the interest savings outweigh the fees.

4 – Move to a basic loan

This doesn’t always mean refinancing as you can discuss your situation with your lender if you feel there are features of your loan you don’t use, and can’t ever see a use for. You can find that the difference between a standard variable loan with more features, and a basic variable loan with few features can be as much as 0.5% interest.

How do I maximise the benefits from making a lump sum repayment to my mortgage?

You may not be able to make additional repayments regularly each month but if you have a lump sum of cash from a tax return, a gift, an inheritance or an investment windfall, you should look at depositing this windfall into your home loan to repay it sooner.

First make sure that your lender does not charge you fees or penalties for making additional repayments – you are now ready to invest your windfall in your future. Depositing your additional funds into your loan account will directly reduce the principal loan amount. Your home loan interest is calculated on your principal loan amount and with a reduced principal you will be charged a reduced amount of interest.

As a result you are getting a tax free return on your investment, better than any you would have received through shares or term deposits as you are not taxed on interest saved. However, if you had invested your windfall, and your marginal tax rate is 31.5% you would need to find an investment which returns 12% before tax to receive the same benefits.

For example if you are paying the minimum weekly amount on your 30 year $400,000 mortgage, but you are able to make a lump sum repayment of $5,000 at an interest rate of 8.5% you are saving over a year from your loan term and $42,000 in interest and there are few low risk investments which will offer you that sort of return.

How do I manage my mortgage successfully?

Being a mortgage holder is unlike any other job in the world – your mortgage is important to the safety and security of your family home, it is another bill to be paid and it is one which can be as fluid as the monthly decisions from the RBA. Therefore, to help you manage your mortgage with the ease of a financial planner, follow these six tips:

1 – Avoid fixed rate penalties

Most fixed interest rate loans will charge fees for or disallow additional repayments or early exit from your loan during the fixed rate term. Therefore, if you want to make your home loan savings through additional repayments consider a variable rate loan which includes additional repayments for free. If you want to save through a fixed interest rate, look at a term around three years as this length of time reflects the official interest rate cycle and restores your loan flexibility sooner.

Alternatively consider a split loan which applies a fixed rate to just a portion of your loan, protecting you from rate rises, while the remainder of your loan remains flexible and variable.

2 – Be vigilant of your statements

Your home loan is no place to become complacent about transactions as banks and other financial institutions do make mistakes. Therefore make sure you check every statement for errors which could be an incorrect interest rate or a mistake in the timing of your debits, which can cost you. as soon as you notice an error, question it with the bank and they will usually be able to refund you the difference right away.

3 – Increase your repayment amount

When the Reserve Bank raises official interest rates, your lender won’t be too far behind so if you are on a standard variable interest rate, watch what the RBA does and follow suit with your repayments. This can put you ahead in additional repayments if your lender takes their time passing on the rise, and will get your budget into the habit and ready for a higher minimum payment.

If you aren’t able to increase your repayments any further but official rates are predicted to keep rising, look for a good deal on a fixed rate term to keep your repayments steady.

4 – Check early payout charges

If you pay out your loan before the end of the term your lender is losing out on interest charges from you, so they will try and recoup their losses through early exit fees. Most loans will charge early exit fees and these are often higher in the first few years your loan account is opened, so make sure you know what you could be paying.

5 – Maintain your repayment amount

As you watch the movements of the RBA, eventually the interest rate cycle will begin to decrease official rates again. However, to help you repay your mortgage more quickly and easily keep repaying the same amount, even if your minimum repayment amount drops. This reduces your principal loan amount without you having to make significant changes to your budget.

6 – Remember what redraw is for

Just as additional repayments can get you ahead on your home loan, redrawing those repayment can be a setback. Therefore, try and avoid accessing your additional funds through redraw unless it is a real emergency, especially if your lender charges you for the feature.

Can refinancing help me repay my mortgage faster?

Switching to a home loan with a lower interest rate, more inclusive features and lower fees can of course save you time and money in repaying your loan. To maximise the benefits of refinancing, follow these tips:

• Look for a refund broker as these discount brokers will offer you a rebate on the commissions they receive from the lender for signing you as a new loan customer. This means you could receive as much as $1,000 on a $300,000 mortgage.
• Negotiate with your current lender first as you will save potentially thousands of dollars by not refinancing. Instead, tell your current lender about the fee reductions or lower interest rates you can get with other lenders and give them a chance to match or beat the other offers. Most lenders are able to offer a discount of up to 0.7% if you have a large enough loan, all you have to do is ask.
• Look for specials as you’re shopping around because you could save hundreds of dollars on zero application fees, or fee waivers on professional packages.

To make sure that refinancing is a worthwhile option and truly does save you time and money, watch out for these traps:

• Exit fees can be equivalent to several months’ interest depending on how long the loan has been active, or could be a percentage of the original loan amount.
• Establishment fees can be as much as $800 on a new loan.
• Other new loan costs include stamp duty, legal and conveyance costs and valuation costs, which can exceed $1,000 where stamp duty alone can be several thousand dollars depending on the value of the property.
• A rising interest rate from your new lender can see you back in the same position of needing to refinance to a lower interest rate. This is why it is important you compare home loans based on more than just the interest rate.
• Introductory rates can distract you from the revert rate which applies after the honeymoon period which can be as much as 2% higher than the introductory rate which enticed you to refinance.
• Refinancing to a basic variable rate home loan may provide you with an interest rate which is around 0.5% lower than most other types of loans but basic variable loans can be very restrictive. You may be subject to higher ongoing fees, and higher early repayment fees if you exit the loan within the first four years. You are also likely to have fewer features and may only be able to repay your loan monthly, and not make any additional repayments.

What are some home loan traps which prey on people looking to pay off their mortgage sooner?

When you are looking to borrow the money to buy your home, there is a lot of interest and a lot of fees at stake and some lenders and brokers will do just about anything for the opportunity to prey on you. Therefore in your search for ways to repay your mortgage faster, make sure you avoid the following potential traps.

Should I refinance to a line of credit?

A line of credit loan allows you to have a credit amount approved above your loan amount based on the equity which is available in your home. However, according to the banks, a line of credit home loan was never intended to help people repay their loans faster and in using a credit card for all of your daily expenses while your salary offsets the interest charged in your loan account requires significant discipline and self control.

The interest rates on line of credit loans are also higher than standard rates, and coupled with the temptation of available credit on your home loan, you are less likely to repay your mortgage sooner with a line of credit loan. Instead, line of credit loans were developed to allow people to access the equity in their homes for other investments, as home loans are one of the cheapest forms of borrowing.

Should I pay for a service to cut my interest rate and term?

Avoid brokers, lenders and services which promise to reduce your loan term and save you in interest for a fee. These services often involve complicated plans and unrealistic budgets, on top of the fees for the service. If you intend to save on your loan by curbing your spending and sticking to a budget you can do this without refinancing.

Are mortgage brokers always acting in my interests?

Mortgage brokers get paid when they sign new customers to a loan as the lender pays them a commission for bringing in new customers. Therefore, a mortgage broker can often advise that you refinance so they can earn their commissions. However, changing lenders can be very expensive when you consider exit fees and new loan costs so before you switch, calculate whether the savings you will make with your new loan – through a lower interest rate or fewer fees will outweigh the costs of refinancing within 12 to 18 months to deem whether a switch is in your best interests.

If your looking to find a trusted mortgage broker to advise you on current home loan options, you can now use the Mortgage Broker Finder service to search for mortgage brokers in your local area.

What is the best way to consolidate debts into my home loan?

You may feel as though your personal loans and credit card debts are holding back your finances because of high interest rates and fees, and so refinancing to consolidate your debts into your home loan seems like an attractive option.

While you are saving in lower repayments thanks to the lower home loan interest rate, you will be paying more interest in the long run, because now your personal loans and credit card debts are spread out over a 30 year term. You’re also taking on a larger loan amount to cover the costs of your debts and this puts your home at risk if you default on your repayments.

Are there any benefits to a 40 year mortgage?

A 40 year mortgage allows you to spread your repayments over a longer term, and therefore pay less each month. However, as you are repaying the amount for a longer period of time, the loan is actually costing you more in interest charges.

For example:

• A 30 year loan for $250,000 at 8% interest will make your repayments $1,834 per month.
• A 40 year loan for $250,000 at 8% interest will make your repayments $1,738 per month.
• Over the 30 year loan term you will repay around $411,000 in interest.
• Over the 40 year loan term you will repay around $585,000 in interest.

As a result your 40 year loan term is saving you less than $100 a month in repayments but costing you over $174,000 in interest charges. Plus, because you are paying so much more interest, over a longer period of time, you are at greater risk when interest rates go up.

I don’t have enough deposit, should I choose a no deposit home loan?

While there are fewer lenders who will offer you a no deposit home loan, there are still ways to obtain loan approval without having to supply any of your own funds for the deposit. A no deposit home loan will have a higher interest rate, and be costing you more in lender’s mortgage insurance, which applies when a loan to value ratio is greater than 80%. Plus, LMI is not even protecting you and your home, it is protecting the lender in case you default on the loan.

.Therefore, even if you can only afford a small deposit you will be better off, for example if you were borrowing $400,000 and made a deposit of just 5% which is $25,000 your mortgage insurance will be around $4,000 cheaper.

Some lenders will even allow you to borrow more than you need for the purchase price, to help pay for other lending costs such as stamp duty and application fees. These 106% or 110% loans are much rarer but can mean you don’t need to worry about the mounting home loan process costs. For example, if you are buying a home which is valued at $236,000 you could borrow up to $250,000 with a 106% loan. However, at an 8% interest rate on a 30 year loan term it will be five years before your loan is back to 100% and matches the value of your home, and another fifteen and a half years before your loan amount is 80% of the original value.

This makes borrowing more than the property is worth a risky option because while house prices traditionally rise over the long term, if your suburb or property experience a slump you will have negative equity in your home and will need to work hard making additional repayments to get ahead.

Plus, when you borrow the full purchase amount or more, you are setting yourself up for larger repayments each and every month. However, if you are able to save and budget for a deposit and home loan fees, you will be able to be ahead from the beginning when your loan is less than the value of your property, and your repayments reflect this lower loan amount.

With all of this information and advice about how best to manage your home loan, you can feel safe dipping back into the waters of mortgages, refinancing and repayments. You are now armed with the tools you need to repay your mortgage faster and more easily, and you can feel secure in the knowledge you have done everything you need, to avoid the sharks in the water. For help with the next stage of choosing and applying for an easy to manage home loan, compare variable rate loans and fixed rate loans today.

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