For many home buyers, the grand plan is to pay off their mortgage in the quickest possible time. When it comes to strategies to own your home sooner, there are some basic principles to take into account.
The first and most sensible plan is to engage the services of a mortgage adviser who can direct you to a broad range of reputable lenders and recommend loan options that suit your budget and lifestyle requirements.
A variable interest rate loan is the most popular loan type, often because it allows the borrower to pay unlimited extra amounts without penalty, thus reducing the interest paid and the term of the loan.
It is surprising how much can be saved by changing the frequency of your repayments and/or making extra repayments. In the case of a $350,000 home loan with an interest rate of 7.00% and loan term of 25 years, the monthly repayment is $2,474 and total interest payable over the life of the loan is $392,118.
Change the repayment frequency to fortnightly and the repayment is $1,237 and the total interest payable is $311,108. Interest is calculated daily on the loan balance. By changing to fortnightly repayments, in this case, there is a saving of $81,010 in interest and 4.5 years off the loan term.
Increase the fortnightly repayment by $50 to $1,287 and the total interest payable is 238,718. This is a saving of $108,400 in total interest payable and will take over 6 years off the loan term.
Variable rate loans have other benefits, such as allowing the borrower to redraw on excess loan payments with little or no fee providing easy and affordable access to funds when required. A variable rate loan is not suitable for everyone. For example, borrowers on a tight budget usually are suited to a fixed interest rate home loan.
Having trust in your mortgage adviser’s professional approach will allow you to make fully informed decisions aimed at achieving your financial goals as quickly as possible. The first step is ensuring you gain quality advice and the right loan structure for your needs and personal circumstances.
