Commissions and Bonuses – How to use them to Overpay Your Mortgage
Earning a living has changed a lot in recent years, and so the method of repaying your mortgage has had to change as well. Most people used to have a job which paid a steady, regular amount each month, and you got a raise when your union had successfully fought for it. The Arbitration Commission was then introduced to increase national wages to match increases in the cost of living. Today many of us still rely on outside forces to protect and manage our income levels, as the Industrial Commission handles individual industry based productivity arguments.
State Custodians Breathe Easy Home Loan
With one of the most competitive interest rates on the market, your repayments will always be low with the Breathe Easy Loan .
- Interest Rate of 6.47%
- Comparison Rate of 6.36%
- Application Fee of $0
- Maximum LVR With LMI: 95%
- Minimum Borrowing: $150,000
- Maximum Borrowing: $1,000,000
While many Australians work within these heavily regulated guidelines, there are many more who earn an income which directly reflects their efforts at work. For example, you may be in a management position or work on a commission basis and so your income fluctuates according to your performance. Or you may be self employed and running a small business and your income depends on your business success.
As a result of the changing ways Australians earn a living, home loan features have changed as well. A generation ago, Australians were happy to repay their mortgage until they retired, and then live in the home they owned outright, however, the focus now is to use flexible, performance based income to more quickly repay your mortgage and save on interest charges. The result is a range of home loans which allow you to overpay on your mortgage repayments when you are earning more money in commissions and bonuses, to save years, and thousands of dollars off of your loan.
Repaying a Loan Over the Full Term
In the past, penalties were imposed on you if you made any attempt to repay your mortgage earlier than the term agreed to in the home loan terms and conditions. This was because the home loan provider relied on the loan going its full term of 20, 25 or 30 years, or more, to realise their full profits from the compound interest being charged. A lender was able to predict with reasonable accuracy how much they stood to make on every home they were financing. It also suited the home buyer because the repayments they were making on their loan were the same as what they would be paying in rent for the same period of time.
While lenders didn’t want you to make additional repayments as this affected the final outcome and lessened their potential profit, it wasn’t usually an issue as the home buyer generally didn’t have the resources to make any extra repayments anyway. Even though most home buyers couldn’t afford it, additional repayments and early redemption of home loans was discouraged for many years, and penalties were put in place.
Additional Loan Repayments
Repaying your mortgage today is a completely different matter. Many home buyers are able to earn large amounts of money from time to time as in the case of the self employed when they are paid for a major contract they have won, or a manager who has had the ability to increase the earnings of their department and has therefore been paid a large bonus.
With this extra income more home buyers have been able to increase their mortgage repayments and pay off their loan much sooner than the original loan term. Paying additional funds into your home loan is much more effective than stashing them in a savings account as the interest rate you earn on your savings will not be more than what you are paying on your home loan, and so the funds would be put to better use reducing interest than earning interest.
Lenders have had to accept this trend and as a result we now have home loans that actually encourage additional repayments in various ways. If you are in the position to repay your mortgage early through regular or occasional overpayments there are three major elements in the loan you should insist on:
- Fee free and unlimited additional repayments so that fee penalties don’t eat into your savings.
- Fee free and unlimited redraw facility so that you can access your additional repayments if you need them back in an emergency.
- The longest possible loan period so that the amount of interest you pay each month is the lowest possible, and you don’t have to worry about the long loan term because your additional repayments will shorten the term anyway.
Current Account Mortgage
A reasonably recent innovation in the home loan market has been the introduction of the current account mortgage. This type of mortgage loan includes your savings and your home loan in the one account. This allows you to use your savings and income to reduce the principle amount of your mortgage, and in turn reduces the amount of interest you are charged on your loan. You can then use your loan as a transaction account and spend your income and savings as you need them, and when you don’t need them they are saving you interest.
If you think it will be too tempting to have access to the equity in your home then this may not be the best way to shorten the term of your home loan. If having all of your accounts in your home loan is going to encourage you to overspend, you can enjoy similar benefits using an offset account, which is linked to your home loan account, and interest is only applied to your home loan amount, less the amount in your offset account, even though they remain separate at all times.
Your home loan is likely to be the biggest investment you’ll ever make in your life, but that doesn’t mean you have to be repaying it for the rest of your life. Instead, start comparing your home loan options now to find one which rewards you for additional repayments.
Related posts:
- What features help repay a home loan faster?
- Mortgage Overpayments – The Quick Way Out of Mortgage Debt
- Home Loan Features
- Homeside Fixed Rate (Interest Only Mortgage)
- Westpac Premium Option Home Loan
- How To Calculate how much you will save with an Offset Account
- How Do I Pay Off My Mortgage Faster
- IMB Lo Doc Loan
- Bad Credit Mortgage Refinance
- RAMS Basic Loan
Top Home Loans
| Home Loan | Details | Interest Rate (p.a.) | Comp Rate^ (p.a.) | App Fee / Ongoing Fee | Max LVR | Min & Max Borrowing | |
|---|---|---|---|---|---|---|---|
 Loans.com.au - Dream Catcher | A home loan offer with a $0 application fee and one of the lowest available home loan interest rates. | 5.85% | 6.21% | $0 / $375 | 80% | $50,000 / $750,000 |
 
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 State Custodians Mortgage Company Standard Variable Offset Loan | Awarded Mortgage of the Year 2012 – this multi-award winner features 100% offset and a loyalty 0.25% rate drop after 5 years. | 6.02% | 6.23% | $0 / $345 | 95% | $150,000 / $1,000,000 |
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 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 |
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