17 hours ago
Mortgage broker reveals $112,000 home loan mistake: ‘Costing you a bomb'
A mortgage broker has revealed how Aussies could shave thousands off their home loan and pay it off quicker by making one simple change to their repayments. The Reserve Bank of Australia (RBA) cut the cash rate this week, providing welcome relief to millions of borrowers, but there are other ways to save aside from getting a lower interest rate.
Most banks and lenders will set monthly home loan repayments as a default and Cameron Capital founder Mary Cameron said it could be 'costing you a bomb'. She said just switching the frequency of your repayments to fortnightly or weekly can make a surprisingly big difference to your loan.
'Having a smart structure and paying it off with these earlier and more frequent payments [means] that you can save over $100,000 over the life term and four years of your loan,' Cameron told Yahoo Finance.
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Cameron gave the example of a borrower with a $550,000 home loan with an interest rate of 5.8 per cent over 30 years.
They would have monthly repayments of $3,208, but if they switched to fortnightly repayments of $1,604 they could take four years off their loan and save $109,000 in interest.
If they switched to weekly repayments of $802, they could save four years on their loan and save $112,000 in interest.
Cameron said to consider how often you get paid. If you are paid weekly or fortnightly, it might make sense to match your repayments to your pay can paying fortnightly or weekly save me money?
The reason for the difference is because you are actually making more repayments during the year compared to monthly.
That's because by paying half the monthly amount every two weeks, you'd make the equivalent of an extra month's repayment each year, as there are 26 fortnights in a year, which works out to 13 monthly repayments annually. There are similar benefits for weekly repayments too.
'It's a sneaky little way of actually slipping in an extra repayment for the year. So by paying it off weekly, you're actually without realising it getting a whole month repayment in that annual year,' Cameron explained.
Interest is also calculated daily, so the more frequently your debt is being repaid, the lower your interest costs will be.
Cameron said most banks will allow you to switch to fortnightly or weekly repayments. You can ask your mortgage broker for help with this or call up the bank directly and make sure it suits your personal circumstances.
How else could I save on my home loan?
If you're looking for more ways to pay off your loan quicker, Cameron said keeping your repayments the same after the RBA's recent cash rate cuts could be worth considering.
Vanguard calculated that borrowers with a $600,000 mortgage and 25 years remaining on an interest rate of 5.8 per cent could pay off their loan more than a year earlier and save $29,705 in interest over the life of their loan just by keeping repayments the same after Tuesday's rate cut.
'You're smashing down the loan a lot sooner, just keeping the repayments the same without reducing your repayments to the new, smaller amount,' Cameron said.
CBA, NAB and ANZ revealed millions of borrowers have already been doing this, with just one in 10 opting to lower their repayments following the May rate cut. Westpac is the only Big Four bank that automatically drops repayments for customers paying the minimum amount.
Popping any lump sum bonus money you receive, like any tax refund, is another way to bring down your home loan, Cameron said.
'Even if it's once a year and they get $5,000 from their tax return, throw that in your mortgage account. Don't keep it in a savings account because it's doing nothing for you,' she said.
You could also consider rounding up your repayments.
'If your repayment is something like $2,378 per month, just round it up to $2,500 a month,' Cameron said.
'You'd be surprised with just that $130 extra a week, throwing that in other than just the standard amount that you're required to make, how that little extra adds up massively over time.'
Aussies have also been switching to different banks, with recent ABS data revealing nearly 100,00 mortgages switched to a different lender in the June quarter. That works out to more than 1,000 mortgages refinanced a day.
