Many home owners have growing concerns about the possibility of interest rate rises in relation to their large home mortgages. If you do find yourself held hostage by your bank manager there are still things you can do now to plan your escape from the clutches of debt. Here are 5 important tips you can implement to save years off your home loan and potentially save hundreds of thousands of dollars in interest.
Are you looking to pay off your mortgage sooner? If you’re not, maybe you should be.
The Institute of Superannuation Trustees of Australia highlighted in a recent report a “disturbing” aspect of the current Australian housing crisis stating that the challenges don’t stop once you are able to purchase a home. Allegedly those who are able to enter their local property market may still be behind the eight ball.
What we are seeing from Census data and other supporting statistics is that the percentage of homeowners who own their principle place of residence completely free from debt has dropped significantly from 61.7 per cent twenty two years ago to the 46.7 per cent we’ve seen in recent years.
Economist Saul Eslake from ISTA further elaborated on this; “In other words, compared to 15 years ago when almost three out of five home owners owned their home outright, home owners with a mortgage are now in the majority.
However, not all is lost. Property is still one of the most fundamental ways to build wealth in this country and there are additional things you can do to ease the burden on yourself and potentially your children by reducing that mortgage down faster.
Another increasing trend has been the Baby Boomer generation adding cashflow positive properties to their investment portfolios to further increase their weekly payments on their own home. Some have the goal of passing the investment properties on to their children when the time comes and thus place the properties in a family trust structure to distribute funds legally as they see fit. This benefits the parents now, and will be of huge benefit to the children later as property prices increase as the years roll on.
In addition to that here’s 4 other easy tips that everybody has probably heard before, but very few people actually put into practice. Putting these tips into action can literally shave up to a decade off your home loan and potentially save you hundreds of thousands of dollars.
1. Make Loan Payments Weekly
Rather than making payments monthly or fortnightly, make your home repayments weekly. The interest on your home loan is calculated daily, so this small change will have a significant effect on the amount of interest you pay over several decades.
2. Pay an Extra $50 Per Week if Possible
The banks want to draw out your home loan for as long as possible as it is obviously much more profitable to do so. Paying that little bit more than the minimum payment required will go a long way to eating into that bad debt, and getting the bank manager off your back.
3. Maintain $10,000 in an Offset Account
Most people have savings sitting in some kind of interest bearing account, but an alternative way to have those savings working for you would be to have them sitting in an offset account where they reduce the interest being charged each week. Additionally having any kind of income (wages, investment property cashflow etc) sent directly to this account will also help the cause.
4. Use a Credit Card to Pay Monthly Bills BEFORE Interest Kicks In.
It’s an easy, obvious suggestion, but making sure the balance is paid off before the interest free period each and every month without fail will maximise the amount of time your money stays in the offset account, minimising your interest repayments.
At our next complimentary live event I will specifically focus on how to locate high yielding properties with a strong history of capital growth that pay you for owning them, and where we believe the next rising markets set for investment are. Our last two events sold out so with limited seats available please don’t delay and register using the link below now.