How can you pay less interest on your home loan?
4 min read
In Australia, we’ve recently experienced the fastest interest rate rises in 30 years. If you’re a homeowner, then chances are you’re looking for ways to pay less interest on your home loan.
Top ways to pay less interest on your home loan.
There are several ways you can pay less interest on your home loan:
- Refinance your loan: If you can find a lender offering a lower interest rate than your current one, refinancing your loan can save you a significant amount of money on interest, along with some very enticing cash backs.
- Make extra repayments: By paying more than the minimum monthly repayment, you can reduce the amount of interest you pay over the life of the loan. Making additional repayments can also shorten the loan term, so you pay less interest in total.
- Change your payment frequency: Most loans have monthly repayment frequencies by default. If you switch to fortnightly payments, you’ll be making twenty-six payments per year which is equivalent to making thirteen monthly payments, this can help you pay off your loan faster and reduce the amount of interest you pay.
- Choose a shorter loan term: Shorter loan terms may have lower interest rates than longer terms. If you can afford higher monthly repayments, choosing a shorter loan term can save you money on interest.
- Make use of an offset account: An offset account is a savings account linked to your home loan. The money you have in your offset account is subtracted from your outstanding loan balance when interest is calculated, reducing the amount of interest you pay.
- Make lump-sum payments: If you receive a windfall or bonus payment, using it to make a lump-sum payment towards your loan can help reduce the amount of interest you pay over the life of the loan.
- Negotiate with your lender: If you have a good repayment history and a strong credit score, you may be able to negotiate a lower interest rate with your lender. It’s always worth asking!
Using your offset account to pay less interest on your home loan.
One of the one best ways of reducing interest payable on your loan is by utilising your offset account. An offset account can be used as either a transaction or a savings account, this means you can place your savings or your monthly salary (or both if you have multiple offset facilities!). Then any funds in your offset account will reduce the principle loan value the bank calculates your interest on.
For example, if you have a loan of $500,000 and $100,000 in savings in your offset account, the bank will calculate your monthly interest payment on $400,000. If you want to see how much you could save making extra repayments or utilising an offset account, head over to our loan repayment calculator and pop your details in.
The reason we recommend you utilise your offset account is that interest saved is almost always going to be greater than interest earned.
Banks and institutions rarely (if ever) offer better rates on their savings products than they charge on their lending and credit products as for the most part, it’s where they make so much of their profit. Income needs to be greater than
If you’re ready to save money on your home loan, speak with the Entourage team today!