5 Ways to save on your home loan

By Contributor | 11 Jan 2019

Buying a home is one of the biggest financial moves a person can make. You’ll likely be paying down the loan balance for decades, and the overall cost can seem daunting at first.

Thankfully, there are several ways to save on your home loan—both when you’re applying for one and when you’re paying it off. Take a look at our top five tips for saving on your home loan.

1. Pay off the loan quickly

There are quite a few viable tips to saving money on your home loan, but the best one we can give owner-occupiers is to pay off your loan balance as soon as you can.

Structure your loan repayments as principal and interest, so you’re paying down the principal from the start. The longer the life of your loan, the more you’ll pay in interest over time. Your goal is to reduce the principal as much as possible, thus saving on interest.

Putting some extra money towards your mortgage will reduce the interest you pay in both the short and the long term. The result will end up being thousands—if not tens of thousands—saved on interest repayments.

Making extra repayments can seem difficult, but there are a few strategies that will help you reach your goal. First, check the loan terms and see if there’s any cap on additional repayments. This barrier will only apply to fixed-rate mortgages during the fixed term.

One strategy to paying your loan off early is simply paying on a fortnightly basis rather than a monthly basis. The reason this strategy works is that there are 26 fortnights but only 12 months in a year.

You’ll be paying an extra month’s worth of payments every year you pay on a fortnightly basis. This can be a good method for those on a tight budget.

Be aware that paying out your loan early can result in fees. Check the terms and conditions of your loan to see if these apply.

2. Negotiate

Negotiating with a lender before you apply for a loan is one of the best ways to save some money. For this, you’ll need to do your research and understand the different rates, features, and benefits each lender offers.

Compare home loans to get an idea of what some popular lenders offer, then have a chat to a mortgage broker about the loan products that interest you. A mortgage broker can negotiate with lenders on your behalf to nail down a great rate and features for your loan.

3. Take advantage of offset accounts

Offset accounts are a common feature these days, with most lenders offering them as an option with certain loans.

An offset account is a transactional account linked to your loan. The balance in the offset account is then used to ‘offset’ the principal, resulting in lower interest charges. Most offset accounts offer 100% offset, so we’ll use this as an example.

If you have a $350,000 loan with $50,000 in an offset account, you’ll only be charged interest on $300,000. If you are able to keep a substantial amount in your offset account, you stand to save thousands of dollars in interest repayments.

However, note that some offset accounts come with account-keeping fees, so weigh up the cost against the benefits before making a decision.

4. Use loan packages

Loan packages aren’t for everyone, but they can be a way to save some extra money when you’re first applying for a home loan.

Lenders often offer packages that include discounted rates, discounted insurance, credit cards, access to a financial planner, and more. You’ll pay a single annual fee and be able to borrow on a slightly discounted rate.

Again, this might not make sense for your circumstances if you don’t need the added features. Still, packages can be a good deal for many borrowers, and you should take them into account when applying.

5. Review your home loan regularly

This is especially important for borrowers who had sub-par credit or a low deposit when they applied for their home loan. After you’ve had your loan for a while and built up a good credit history, you may find that you qualify for a better rate with a different lender.

Some lenders offer lower rates than others, and you might find that your current rate is above market standards. The difference might seem small at first, but can add up to thousands of dollars over time.

Switching loans doesn’t have to be a hassle, especially if you have a broker on your side to help with the process. You may even want to refinance your loan with the same lender, depending on their loan products.

Hopefully, these tips were able to give you some insight into how you can save on your home loan. Ready to save on your home loan? Visit ratecomparison.com.au to compare options today.

Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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