How to take advantage of low interest rates ———- Part 2

Last week we wrote about the benefits of ensuring you have the right loan in place.
In Part 2 we’ll look at some strategies to employ once you know you’ve got the right loan.

Open an offset account:

Why have your money sitting in a savings account earning a massive 1.50% interest when it could be reducing the interest on your mortgage?
Most people have access to an offset account, but not many people take advantage of them.
Perhaps they don’t understand exactly what they do.
Interest is calculated daily on home loans, but only charged monthly. Whatever balance is in the offset account is subtracted from the home loan balance for the bank to work out the interest charge – For example, if your offset account has a balance of $50,000 and your home loan balance is $300,000, your loan interest would be calculated on the difference, being $250,000.

If your mortgage interest rate is 4.50% – that’s a risk-free, tax-free saving of 4.50%. Compare that to your pre-tax 1.50% savings account interest – and it’s a very easy decision to make.

Give yourself a time frame:

Have you thought about the day that you’ll have your loan repaid? If you haven’t – you are probably on track to have it paid off in 30 years.
Did you know that amending repayments to pay off a $300,000 mortgage over 20 years instead of 30 will save you over $100,000 in interest payments?

Increase the frequency of repayments:

Do you pay your mortgage via weekly, fortnightly, or monthly repayments?

If you choose fortnightly repayments, you will pay half of the monthly repayments each fortnight. Because there are 26 fortnights every year, this is equivalent to making an extra month’s repayment each year. This means you’ll build equity in your home more quickly, plus pay off your loan sooner and save in interest.

Consolidate your debt:

Do you have a mortgage, a car loan and a credit card debt?

If you do, you’ll know that of the three, your mortgage has a much lower interest rate than the other two. Why? Because this debt is secured by a ‘secure’ asset as opposed to a car, whose value is much less secure, and a credit card – where the debt is essentially unsecured.

If you have equity within your home, it may be beneficial to redraw to repay debt on your car or credit card, as the interest charges will be much lower on your home loan.

To maximize the benefits of this strategy, keep your repayments the same, even though you’ll be charged less interest.

Please speak to a qualified financial adviser at Financial Freedom By Design to discuss strategies that can help you play off your home loan sooner.

Please note – the above is General Advice. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.