10 ways for health professionals to own your home sooner
Let’s face it – nobody gets up in the morning and says “Gee I’d like to buy a home loan, today!” A mortgage is a means to an end which is owning your own home. And we’d all love that to be fully owned with the mortgage paid out. So here is five top tips taken from our “Home Loan Guide for Nurses, Personal care and Health Professionals”. If you’d like the full Guide download it for free.
1. Pay more often
Making payments on your home loan more often has a big impact on the interest charged on your loan. This is because the interest charge is calculated on a daily basis. So if you make loan payments fortnightly, instead of monthly, you are making the equivalent of 13 monthly payments in a year. Make extra payments more often and you could save thousands of dollars in interest charges.
2. Make a lump sum deposit
If you make a lump sum payment into a loan – even a small one – you will notice a big difference in your repayments. This is because interest is calculated daily, so the lower the loan, the less interest you are charged.
For example, you might work a lot of overtime and receive a lump sum payment of $1,000. If you deposited the whole amount into a loan of $100,000 at 6.5% over 25 years, you would reduce the overall loan term by 7 months and total repayments by almost $4,000.
If you continued this strategy, and three years later deposited a lump sum of $4,000, you would cut almost 2 years off your loan term and save another $11,500.
3. Pay your fees and charges up front
Some lenders will allow you to add upfront fees and charges to the amount you borrow, rather than paying at the commencement of your loan. By paying upfront, you won’t pay interest on fees and charges, ultimately saving you money.
4. Use your savings to reduce your interest payments
An off-set account is a fully functional, transaction account that is linked to your variable loan, so the money you have in this account is offset daily against your loan balance. This reduces the interest payable on your loan. To fully utilise your offset account, in simple terms, everything goes in (i.e. all of your income).
If you set up a 100% off-set account, it will be your sole account, incorporating your everyday transactions and your savings account. Everything is linked with your home loan account and ‘off-set’ or used to reduce the interest paid on your loan.
For example, if you had a balance of $5,000 in an off-set account that is linked to a $100,000 loan at 7%, and left the amount untouched, the term of your loan would be reduced by 3 years – and you would save more than $27,000 in interest charges.
Using a full off-set strategy is exactly the same as depositing funds directly into your home loan account. Some lenders only offer partial off-set, which is not as effective. Talk to Custom Financial about the value of refinancing to a lender that will offer full off-set terms.
5. Pay Full Repayment Amount in a Honeymoon Rate Period
Honeymoon rate loans are also known as introductory loans, where lenders will offer a lower rate for the first 2-3 years. To get the maximum benefit from the low rate, you can calculate your repayments based on the current standard variable or fixed rate (usually a higher rate). This will give you a clear understanding of what you will be committing to when the initial interest rate finishes.
You may also like to commence repaying your loan at the calculated amount for a standard variable or fixed rate – that way you’ll pay the loan off quicker and be unaffected by the repayment rise once the initial ‘honeymoon’ period is over.
PLUS: Get more tips about paying sooner & maximising how much you can borrow
There are five more great tips in our full guide about paid your loan sooner, plus we’ll give you the ‘heads up’ on what to look out for in a lender if you’re trying to borrow the maximum amount possible. Just fill out the form below and you’ll automatically be emailed your copy of the Guide.