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HISTORICALLY low interest rates have saved Australian mortgage holders thousands recently, but there are simple tweaks that can boost these further.

One example is changing from monthly to fortnightly repayments, which can save a packet over a loan term; thanks to compound interest says Mortgage Choice CEO John Flavell.

‘Say you have a 30-year Principal and Interest loan of $500,000 with an interest rate of 4 per cent per annum. Your minimum monthly repayment would be approximately $2,387,’ Mr Flavell said.

‘If you decide to pay fortnightly and divide your monthly repayment in half- $1,194 per fortnight- you could save approximately $56,643 in interest over the life of your loan.’ media_camera John Flavell says fortnightly payments can save you thousands.

Careful budgeting of spending money is important. One method is to withdraw cash to spend and restricting yourself to that sum, rather than absent-mindedly tapping away with cards.

‘A good budget will factor in your regular spending habits,’ Mr Flavell said. ‘Inject all the money you save into your offset account or redraw facility to help you pay down your mortgage faster.’

Making extra repayments, even a minimal amount, amplifies savings over the long term, claims Canstar spokeswoman Belinda Williamson.

‘If you have a $300,000 loan over 30 years and increase monthly repayments from $1520 to $1720, you stand to save almost $60,000 in interest over the loan (term) and could repay it six years earlier,’ Ms Williamson said, adding that if you can’t pay extra all year, seasonal adjustments will help. ‘It might mean that once the current footy season wraps you might put that ticket money towards your mortgage.’ media_camera Belinda Williamson says small extra repayments can make a huge difference.

Picking features of a potential loan carefully can also make a difference.

Offset accounts or redraw facilities can lessen interest payments significantly.

‘Consider having your pay, tax return, or any other windfall deposited into your offset and with the addition of a redraw facility, withdrawing when you need it,’ Ms Williamson said. ‘If you had a loan of $300,000 and had already repaid $100,000, you would pay interest on $200,000. But if you had $50,000 in a linked offset account, you would only pay interest on $150,000 of your remaining balance.

‘Based on a loan amount of $300,000 over 30 years, if you deposit $2,000 into an offset account you can shave around $9,650 in interest over the life of the loan and repay it three months earlier. If you increase your offset deposit to $10,000, you can save almost $30,000 in total interest and cut your term by almost 18 months.’


Posted by Tim McIntyre – News Corp Australia on 29th July, 2017