Looking for an extra bit of Christmas cheer this year, or even a way to have a bit more spare cash?
Here we’ll explore how you can avoid getting a lump of coal from your mortgage this Christmas, and can instead optimise your home loan to give yourself the best Christmas present of all.
Steps we’ll cover:
Get an offset sub-account;
Choose principal and interest repayments;
Make extra repayments and more frequent repayments;
Pay lump sums into your home loan;
Build up the equity in your home;
Don’t forget tax deductions on your investment property;
Refinance to a better deal
Get an offset sub-account
An offset sub-account is linked to your home loan and offsets the balance in the account against the balance of your loan, meaning you can save on interest by having money in there and redraw that money when you need it (such as for renovations).
Having an offset sub-account can reduce your interest costs, earn more than in a savings account, can be more tax effective for investors and can enhance your loan’s flexibility, so get yourself a loan with an offset sub-account this Christmas, or ask Santa for one.
Choose principal and interest repayments
Principal and interest repayments can result in you paying off the loan much faster compared to interest-only. While interest-only pays off just the interest component for the first few years (resulting in cheaper short-term repayments), not paying off the initial principal amount (what you borrowed) leads to higher repayments long-term.
Switch to a principal and interest loan today if you haven’t already.
Make extra repayments and more frequent repayments
While it may not seem like a Christmas gift, sending more money into your home loan, making extra repayments now could make future Christmas' more joyful. This is because you’re paying off more than the minimum home loan amount, meaning you can actually save thousands in interest long-term by paying off the loan sooner.
The same applies to making more frequent repayments. Ask your lender if you can pay off your loan weekly or fortnightly instead of monthly, and future you could say thank you.
Pay lump sums into your home loan
A lump sum can be anything like a Christmas bonus from your employer or inheritance you received. While some of this might be put aside to pay for nice presents, you should consider paying off a chunk of your loan straight away, which will have an immediate impact on how much you have to pay overall.
Build up the equity in your home
By building up the equity in your home (how much of the property you own compared to the value of the property), you can actually save money on some other large purchase, like another property, a renovation, or even a loan for a big holiday you want to take with the family in the holiday season.
An equity loan tends to carry a similar interest rate as your home loan, which could be quite low. Most lenders will let you borrow up to 80% of the equity you already have, so this is a big pool of money to have access to for such a loan, and could be much cheaper than getting a brand new loan for something. It can also let you spread out these larger payments and give you more money to spend on family and friends this Christmas season.
Don’t forget tax deductions on your investment property
You can give yourself a bunch of extra cash to put towards Christmas festivities by remembering to deduct a number of expenses from your investment property (if you have one), such as:
The interest component of your loan;
Agent and property manager fees;
Advertising to find new tenants;
Bank fees and loan charges;
Body corporate fees, cleaning costs and council rates;
Repairs and maintenance; and
Other costs like travel to the property, the cost of inspections and depreciation.
Contact an accountant or quantity surveyor for help on working out depreciation and how much you can claim on these other expenses. You could end up a few hundred or even a few thousand better off because of it.
Refinance to a better deal
Ultimately, the best way to save money on your home loan is to refinance to one with a much lower interest rate. Research by the Reserve Bank in 2020 found borrowers with older mortgages could be paying higher interest rates than those who take out new loans, and variable home loans taken out four or more years ago have interest rates that are 40 basis points higher than new loans on average.
On a loan balance of $250,000, that’s an extra $1,000 a year in interest.
So if you’ve been with your current home loan for a while, have a look at what’s out there and see if you can’t switch to get a better deal. loans.com.au could be one such lender: Our home loan interest rates are among the most competitive in the market and contain a lot of the things discussed here, like redraw offset facilities, the ability to make extra repayments, as well as low fees and charges.
A loans.com.au home loan could save you thousands of dollars a year, so give yourself the ultimate Christmas gift this year by refinancing to us. Speak to one of our lending specialists to get started.
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