When it comes to home loan rates, interest is a subject that can keep many borrowers up at night. In the first few years of a mortgage especially, it can be discouraging to see that a large portion of your repayments is going towards interest payments rather than paying off the actual principal payments of your home loan.
Calculate your interest
There are ways you can address this concern. Using our Choice Home Loans’ interest calculator, you can input the details of your home loan – the interest rate, loan amount and frequency of repayments – and find out how much interest you will pay over the life of your loan, and how much principal you still have to go.
Repaying your loan fortnightly
You will notice that if you change the 'monthly' repayments option to fortnightly or weekly, the amount of interest goes down significantly. For instance, if you took out a $450,000 loan at 5.75% over 30 years, and you made your repayments monthly, you would have around $470,000 in interest to pay after 15 years. If you made home loan repayments fortnightly on the same loan, you would only have around $20,000 less to pay.
Topping up your loan payments
For this reason it may be ideal to make repayments twice a month, although of course depending on your financial situation and other obligations this may not always be possible. In this case, even a small extra amount paid on top of your regular repayment may help you lower the interest repayments quicker. In the above example, for instance, if you added $100 more a month to your regular repayments, you’d reduce the life of your interest – and your mortgage – by around seven years.
Lump sum payments
So it’s important to keep in mind ways you can add even the smallest amount to your monthly repayments, as these extra payments will make a big difference in the long run. If you get a pay rise, for instance, you may want to try committing the same percentage of your new salary to your repayments continuing to remain within your usual monthly budget, and you’ll be paying down your loan faster. Tax refunds are also a good one-off payment to put towards your home loan.
You can also seek out a home loan broker for more detailed, specialist advice on reducing your loan’s interest. Choice Home Loans’ experienced and friendly brokers can talk you through any questions you may have about your home loan and help you to reduce your rates. If you feel your present home loan isn’t working for you, talk to a Choice broker today.
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