Get Ahead On Your Home Loan

 

Interest rates are low and holding, now is the perfect time to take steps to get ahead on your mortgage repayments.

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More than the minimum

When my husband and I bought our first house back in 2008, interest rates were over 8%. Our fortnightly repayments were fairly substantial but as we both worked at the time it was manageable.

My husband, who was then actually working in the banking sector, organised our payments to be just a few dollars over the minimum amount. For example if our repayments were $425/ fortnight we paid at least $430 into the loan account.

Now, as rates decreased we actually continued to pay this initial amount per fortnight. What this meant for us, over the long term, was that last year when we were looking at buying a new, bigger house, to accommodate our growing brood, our redraw amount was around $30,000. Almost enough for a deposit on this house! I can’t tell you how much of a help this was.

Additionally, the rate we paid off our loan meant that we achieved over a third of equity in our house in six years!

If we hadn’t been looking at buying another house that redraw money would have been a nice buffer if rates rose and our budgeting had to change, for emergency money, or to pay bank fees if we decided to unlock our fixed rates.

Now some banks limit how many extra repayments you can make on your loan. Because our loan repayments come out of our normal account as a transfer which we can control, we got around this by just increasing the regular repayment amount manually so that there was not an extra payment as such, just a few extra dollars added to each payment. We continue to do this today and I highly recommend it, even as little as $5/fortnight over 10 years is $1300.

Hold off the rate lock

With interest rates so low it seems like an inviting idea to lock your rates right now and take advantage of the situation. At this stage there is no indication that rates will rise in the short term so I would hold off just now.

However, were you to receive any indication that this was going to change in the immediate future it might be a good idea to have a chat to your bank about locking in a lower rate for as long as you can.

The advantages of doing this, when the time is right, is that you can get up to five years to pay off this lower rate and work down the loan amount before the time frame ends and you emerge with a higher rate.

The disadvantage of doing this is that you could emerge at a time where the interest rate is double what you were paying and the steep rise will affect your home budget. But if you have been paying more than the minimum you will have something of a buffer in place as you adjust to the new repayments.

As always, if unsure, visit your bank and have a chat to a home loan specialist or someone in your circle of friends with a background in that area. I’m blessed to have a husband who worked in the banking sector, and in loans, so when he suggests it’s time to lock, unlock or buy a new house I say; explain it to me in layman’s terms and we go ahead with it!

 

Please remember that I am not a financial advisor and am only offering ideas that may work for you.

Always check with your bank, and your husband, that any change you make to your loan is right for you and your circumstances.

 

 

Filed Under: Family LifeFeaturedFinances

About the Author: Emily is a former ACPA award winning editor and journalist turned stay at home mum and blogger. She lives on a farm in regional NSW with her husband and their five children where she spends the time she should be doing housework reading books and writing posts.

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