Home buying is costly. Typical Australian mortgage loans last 20 to 30 years, but you can save money by shaving years off your home loan. Follow our tips to avoid mistakes and pay your home loan faster.
Let's get to the following commonly asked questions:
Most Australian home buyers' mortgages last between 25 to 30 years. The loan term depends on the deposit size, the cost of the property, and the mortgage lenders.
Second-time owner-occupier buyers might have shorter loans as they can use their home's equity as a deposit on a second property. On the other hand, if you're a first-time buyer, you might take longer to pay off your home.
Use a mortgage calculator to determine your loan term and create a financial plan to budget your monthly payments.
Note: Online banking makes it easy to create automatic payments from your bank account to ensure you don't miss a monthly repayment.
It's a good idea to pay your mortgage early. Managing a home loan repayment, student loans, and other debts is challenging. The sooner you become financially independent, the sooner you can begin saving money for the future.
Often, your current loan determines how quickly you can repay it.
Before applying, compare home loans and approach financial advisers or mortgage brokers with an Australian Credit Licence. They will introduce you to competitive variable rate loans from traditional and non-bank lenders.
Important: If you have large saving accounts, it's sensible to repay your mortgage as soon as possible because mortgage interest rates are often higher than your savings account rate.
Investment property business loans are different. Commercial property loans might last anywhere from five to 30 years.
The loan term and mortgage rates largely depend on your business banking history.
Do you get penalised for paying off a mortgage early? In most cases, you can overpay your mortgage without incurring prepayment penalties. Generally speaking, paying off your loan before the term finishes means saving money.
However, some lenders charge a discharge fee if you repay or refinance your mortgage principal amount early.
Seek financial advice about potential fees before making an extra mortgage payment each month.
Note: Repaying your mortgage early won't affect your credit score.
Home loans are significant sums; unless you come into a lot of money, very few people can repay it in five years. However, depending on your financial situation, paying off your mortgage doesn't have to take 30 years.
Use a borrowing power calculator or equity calculator to determine whether switching home loans will shorten your loan term. Here are several refinancing goals to pay your loan faster.
The Australian Reserve Bank's (RBA) cash rate determines your variable home loan interest rate. However, your lender will set a personalised rate depending on your credit history and deposit size. After a few years of repaying your mortgage, your credit score will improve.
You can refinance your home loan to get a low rate and reduce other charges. Use a repayment calculator to check if refinancing makes sense.
Consider other debts, too—can you reduce interest on your credit card with a balance transfer? Alternatively, determine whether debt consolidation personal loan rates are better.
Note: Also, check comparison rates for additional fees.
Another way to negotiate a lower interest rate is to change from a neat variable home loan to a fixed rate home loan. Variable rate home loans fluctuate with the RBA's cash rate. Fixed-rate home loans tend only to last five years, so you could refinance to return to a fixed-rate loan.
Alternatively, if you initially put down a low deposit, you might have had to pay Lenders Mortgage Insurance (LMI). Once you have more than 20% home ownership loan principal, you can refinance to stop LMI payments.
One of the simplest ways to pay back loan amounts quickly is to reduce the mortgage term. There are pros and cons to this method. While it means fewer interest payments overall, it costs more in the short term.
Use a mortgage repayment calculator to determine if you can afford each month's repayment.
Loan calculators will indicate whether changing your repayment frequency will save you money.
Following a fortnightly repayment plan means making an extra payment each year. For example, on a 30-year mortgage, the extra repayments will reduce your loan term by two and a half years.
Instead of refinancing your loan to a shorter term, you could make extra payments to pay it off more quickly. Either pay extra money towards each monthly repayment or pay a lump sum.
Use a budget planner and living costs calculator to ensure you can afford other expenses, such as car insurance and home insurance.
Finally, consider refinancing to access mortgage deals. For instance, offset accounts make managing debt easier. Offset mortgages link to your transaction accounts and offset savings against interest repayments. However, you might have to pay an ongoing fee.
If you buy a house in your early to mid-twenties, you should pay it off by your fifties. You can save more to your super funds with your mortgage out the way. You can use home loan calculators to work out if you can repay your mortgage faster.
However, everyone's personal finance and you should focus on repaying your debt at your own pace.
While most Australian mortgages last 20 to 30 years, you can repay your debts more quickly with lower home loan rates and more frequent payments. If you're unsure how to refinance to get the best deal, consider speaking to a home loan specialist.
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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.
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