The new financial year has just begun, and we at Finance Mutual Australia (FMA), are putting forward our five best money saving tips to help home owners pay off their home loan sooner and pocket valuable savings on interest costs.
TIP 1 – MAKE FORTNIGHTLY REPAYMENTS
While most Australians are paid fortnightly, banks only require monthly repayments. By paying down your mortgage in fortnightly installments you effectively make 26 payments each at half the value of one monthly repayment. This is equivalent to 13 monthly payments, which means that by paying off your mortgage in fortnightly installments you are able to make more contributions and contribute more money in total towards paying off your mortgage, ultimately saving you money on interest and shaving years off the process of paying down your loan.
Example: A 30 year loan of $500,000 at a 3% interest rate would normally cost you $2108.02 per week, totaling $758,887.26 over a 30 year period. However, by paying that same loan off in fortnightly installments of $1054.01, you would save yourself $34,395.64 and have fully paid off your mortgage 3 years and 7 months early.
TIP 2 – PUT YOUR TAX RETURNS TOWARDS REPAYING YOUR HOME LOAN
Using the same home loan example. The average Australian gets $2381 back on their tax return, if they were to put that money directly into their home loan as a lump sum contribution they would save $3,283.55 in interest and shave off 2 months on the total life of their loan. Make that an annual habit and you will end up saving much more time and money!
TIP 3 – TRACK YOUR SPENDING
Track you spending! Aussies are all well acquainted with setting a budget, but setting a budget is not useful if you don’t know how much money you are spending and where that money is going. Tracking your spending is one way of achieving this. Wally is an app that can help you determine how much money you are spending in different things such as clothing, food etc. You can then use this data to determine if you are spending your money effectively and in necessities, and you can also determine whether you are managing to stick to your budget and whether you are spending less money on average. Ultimately this helps you identify spare cash that you didn’t know you had! Putting that money into your home loan as an additional payment can have a huge impact on your savings and the time it takes to pay off your loan.
Example: The average Australian household loses $3,800 in food waste, and spends an additional $2900 per year in alcohol every year. If the average aussie cut their alcohol expense by half, and managed to minimise their food waste by 75% they would have an additional $4300 to put towards their home loans, which is equal to $165 which they can contribute towards their home loan per fortnight.
Using the same loan example as above, you could save $60,581.24 in interest payments, and save yourself 6 and a half years on the life of your loan.
TIP 4 – AVOID THE TEMPTATION OF CREDIT CARDS AND PERSONAL LOANS
Personal loans and credit cards have some of the highest interest rates out there. Often times Aussies who are suffering from mortgage stress are only doing so because they are unable to afford the interest costs of their other loans. This is why we always tell our clients to consolidate their loans under their mortgage, thus reducing their interest rate and unburdening themselves from financial stresses.
TIP 5 – DON’T BE COMPLACENT AND USE A MORTGAGE BROKER
Interest rates are at record lows and the mortgage market is extremely competitive, however home owners shouldn’t just assume they are going to get a good deal just by going to their bank. Most Australians get a bank account when they are young, usually going with the same bank their parents had. Banks know this, and offer their most existing customers higher interest deals while offering competitive rates to steal the customers of their competitors. That’s why we always shop around for the best terms and interest rate for our clients. We can choose from hundreds of loan packages to find the deal that best suits your needs.
Again, using the above home loan as an example, a home owner who can trim just 0.25% from the loan rate can save up to $24,053 in total interest costs and be mortgage-free a year and a 3 months sooner.
ABOUT FINANCE MUTUAL AUSTRALIA
We at Finance Mutual Australia are experts in the mortgage space, and take great pride in using that expertise to help Aussies buy their dream homes, minimise their debt and maximise their financial security.