Top Strategies to Reduce Your Home Loan Repayments

Owning your home in Cannon Hill is a rewarding achievement, but managing your home loan repayments effectively can make a significant difference to your financial future. Whether you're currently applying for a home loan or looking to optimise your existing mortgage, understanding various repayment strategies can help you save thousands of dollars over the life of your loan.

Understanding Your Home Loan Structure

Before diving into repayment strategies, it's important to understand how your home loan works. When you access Home Loan options from banks and lenders across Australia, you'll typically choose between a variable interest rate or fixed interest rate structure. Each option has different implications for your repayment strategy:

• Variable home loan rates fluctuate with market conditions, meaning your repayments can change
• Fixed interest rate home loan products lock in your rate for a set period, providing payment certainty
• Some borrowers opt for a split loan combining both structures

Strategy 1: Make Additional Principal Payments

One of the most effective ways to reduce your loan term and interest costs is making extra payments towards your loan amount principal. Even small additional amounts can create substantial savings over time.

For example, if you have a $400,000 loan with a 6% home loan interest rate over 30 years, paying an extra $100 per month could save you approximately $65,000 in interest and reduce your loan term by about 5 years.

When calculating home loan repayments, consider:
• Your current borrowing capacity for additional payments
• How extra payments affect your overall financial situation
• The impact on your loan to value ratio (LVR) over time

Strategy 2: Utilise an Offset Account

An offset account is a transaction account linked to your home loan where the balance reduces the interest calculated on your loan amount. This strategy works particularly well with variable interest rate loans.

Here's how it benefits you:
• Every dollar in your offset account reduces the loan balance for interest calculation purposes
• You maintain access to your funds for emergencies or opportunities
• The interest savings are equivalent to earning the same rate as your home loan interest rate, tax-free

Strategy 3: Review and Negotiate Your Interest Rate

Home Loan Rates can vary significantly between lenders, and your current rate might not reflect the current market or your improved financial situation. Regular reviews can uncover opportunities for interest rate discounts.

Consider these approaches:
• Compare your current rate with new customer offers from your lender
• Research rates from other lenders in the market
• Leverage improvements in your financial situation since your original Home Loan application
• Ask about loyalty discounts or package deals

If you've built substantial home equity since buying a home, you may qualify for better rates due to an improved LVR.

Strategy 4: Choose the Right Payment Frequency

Changing from monthly to fortnightly repayments is a subtle but effective strategy. By paying fortnightly, you make 26 payments per year instead of 12 monthly payments, effectively making 13 months of payments annually.

This approach:
• Reduces your loan term without feeling like you're making large additional payments
• Aligns with most Australian salary payment schedules
• Compounds the interest savings over the loan term

Strategy 5: Time Your Property Purchase Strategically

For those still in the application process, timing your purchase can affect your long-term repayment strategy:

• Monitor the property market for opportunities
• Consider the impact of stamp duty on your total borrowing needs
• Get pre-approved to understand your borrowing capacity before house hunting
• Use Home Loan pre-approval to negotiate more effectively

A streamlined application process with proper preparation of banks statements and documentation can help you move quickly when the right opportunity arises.

Strategy 6: Consider Refinancing Options

If your current loan no longer serves your needs, refinancing might offer benefits through:
• Access to better Home Loan Rates
• Different loan features like offset accounts or redraw facilities
• Consolidating other debts into your mortgage
• Accessing equity for investment or renovations

However, consider the costs involved, including potential lenders mortgage insurance (LMI) if your LVR has increased, discharge fees, and new application costs.

Making Your Strategy Work for Cannon Hill Residents

As a Cannon Hill resident, you're in a dynamic area with good growth potential. This presents unique opportunities for building home equity and implementing repayment strategies that align with local property market conditions.

Consider how these strategies fit your lifestyle:
• Your commuting costs and how they affect your budget for additional repayments
• Local property trends that might influence refinancing decisions
• Your long-term plans for staying in the area

Remember, the most effective repayment strategy is one that suits your personal financial situation and goals. What works for one household might not suit another, which is why professional guidance can be invaluable.

Implementing these repayment strategies requires careful consideration of your individual circumstances. At LBK Lending, we help Cannon Hill residents understand their Home Loan options and develop personalised repayment strategies that align with their financial goals.

Call one of our team or book an appointment at a time that works for you to discuss how these strategies could work for your situation.