Maintain your repayments if interest rates drop

If interest rates fall, maintain your repayments at the same level. You are already used to not having the extra dollars so stick to the same repayment amount.
For example:

• $300,000 loan at 7.50% (principal and interest) over 30 years
  Monthly repayment - approx $2,098
• $300,000 loan at 7.25% (principal and interest) over 30 years
  Monthly repayment - approx $2,047

By continuing to pay $2,098 per month you would be overpaying by $51 per which could save you $40,000 in interest over the term of the loan and reduce your term by over 2 years!

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Kindergarten economics
In theory, if everyone did this instead of spending the $51, it would keep the pressure on retailers and would, in turn, maintain pressure on RBA to cut interest rates again...... in theory!!! 

It would be a theory worth testing (if we could get the whole country on board) - would need someone like Mark Bouris or David Koch to push this experiment.  How about it Mr Bouris, Kochie - either of you willing to give this a go to help "Middle Australia" get out of debt quicker?

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This example is based an initial loan of $300,000 over 30 years at a rate of 7.5%. The savings are not exact and are designed to be nothing more than thought provoking. The scenarios are generic and do not take individual circumstances into account. You should seek independent financial advice before making any significant changes to your financial products.
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Round down your balance

At the end of each month round your home loan account down.

Once the interest charges have been added, pay an additional payment to round down your balance to the nearest $10 or if you are feeling a bit flush to the nearest $50. It won’t save you a lot – probably less then $0.10 per month, but it all adds up over the term of the loan.

Either way you save and it costs you next to nothing!

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Use your dividends wisely!

Don’t spend your dividends.

If you have any shares, rather than spending the dividends when they come in, why not set up a direct deposit for all your dividend payments to go directly into your home loan account. By having them deposited straight into your home loan account you will not be tempted to spend the money.

A $50 dividend payment could save you over $100 in interest over the term of your loan. Do that every year with all your dividend payments and who know how much you could save and because the money is never going into your regular transaction account you should never miss it!

This example is based an initial loan of $300,000 over 30 years at a rate of 7.5%. The savings are not exact and are designed to be nothing more than thought provoking. The scenarios are generic and do not take individual circumstances into account. You should seek independent financial advice before making any significant changes to your financial products.

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Save on your home loan - be clever about paying bills

A bit of effort could give you FREE money!

 

If you have a fully flexible home loan account which allows overpayments and redraw with no fees use it to your advantage.

When a bill comes in pay the amount into your home loan account as soon as the bill arrives. Then set up a payment for the bill from your loan account the day before the bill’s due date. It does not sound worth while, but have a think about how many bills you pay each year. Let’s take a couple of examples:

• Monthly credit card bill for $1000 arrives on 15th of the month and it is not due for payment until the 2nd of the following month. By putting the $1000 into your loan account and paying the bill 2 weeks later from the loan account you just saved almost $3 in interest. Do this every month and you will save $36 in interest.
• Quarterly Electricity bill for $400 – put the $400 into your home loan for 2 weeks and over the year you could save $4 in interest.

Do this with ALL your bills and who know how much you could save. $100 per year – maybe more? All depends on how big those bills are. It does not sound like much, but essentially it’s free money. Would you say ‘no’ if someone offered to $100 – no strings attached? 

Try it for a year and see for yourself.

This example is based an initial loan of $300,000 over 30 years at a rate of 7.5%. The savings are not exact and are designed to be nothing more than thought provoking. The scenarios are generic and do not take individual circumstances into account. You should seek independent financial advice before making any significant changes to your financial products.

 

Set up an extra recurring payment

Most home loans allow you to make additional payment. Set up a recurring payment that you will never miss - don’t aim too high.

The key to the success of this is to make sure it is an amount that you will never miss. If you are likely to miss it – you are likely to stop the repayment in the future. Start low and if you can increase the amount over time all the better, but even $10 per week will make a huge difference over time! So how much could an extra $10 per week save you??

Well, you may be surprised to hear that an additional $10 per week could save you around $35,000 in interest over the term of the loan and reduce your term by nearly 2 years.

$10 does not buy you much these days, but would you have thought that $10 per week could make such an impact on your home loan and long-term financial independence?

If there are 2 of you and you both put in an extra $10 per week your savings could double!!

This example is based an initial loan of $300,000 over 30 years at a rate of 7.5%. The savings are not exact and are designed to be nothing more than thought provoking. The scenarios are generic and do not take individual circumstances into account. You should seek independent financial advice before making any significant changes to your financial products.

Move to fortnightly payments

Change your repayment from monthly to fortngihtly.  Rather than 12 monthly payments you will actually make 26 fortnightly payments in a year. 

You will save on interest and you will end up paying off more capital in any given year.

For a $300,000 loan over 30 years this could save you almost $120,000 in interest payments over the term of the loan and you could reduce the term of your loan by around 7 years!

This example is based an initial loan of $300,000 over 30 years at a rate of 7.5%.  The savings are not exact and are designed to be nothing more than thought provoking.  The scenarios are generic and do not take individual circumstances into account. You should seek independent financial advice before making any significant changes to your financial products. 

Money - home loan back to basics

With all the talk of Interest Rates changes I though it might be worth looking at home loans and how to get rid of your home loan ASAP.

Not a subject directly connected to BeFound and employment, but a subject that is very important to us all.

Firstly, unless you are very strict with your money and have a good handle on exactly what you are spending try to avoid an ‘All in one’ portfolio type loan which work like a normal bank account in permanent overdraft.

These loans are extremely flexible, but the lenders are banking on you getting lost with your budget and essentially treating it as an interest only arrangement – always reverting back to your max overdraft limit.

As with anything you can use the flexibility to your advantage, but be very careful. If you are not great at budgeting do not use the loan account as your everyday bank account – maintain a separate every day transaction account.

The thing to realize is that despite what they say the banks actually want you to be in debt for as long as possible – that is how they make their money so when you are offered fancy new home loan product, make sure you know exactly what you are signing up to.

The biggest mistake is using home loans to free up cash. Using home loans as a cash flow tool is extremely risky and your only aim with your home loan should be to pay it off ASAP. Reduce the term as much as you can and overpay as much as you can afford as often as you can afford.

There are people out there who still promote interest only loans – but my view – steer well clear of them unless it’s for an investment property and you know exactly what you are doing.

Over the next 6 days we will give you 6 easy ways to pay off your home loan quicker. Do all of these and you could save well over $150,000 in interest and shave at least 10 years off the term of your loan.

All the examples we show over the coming days are based an initial loan of $300,000 over 30 years at a rate of 7.5%. The savings are not exact and are designed to be nothing more than thought provoking. The scenarios are generic and do not take individual circumstances into account. You should seek independent financial advice before making any significant changes to your financial products.