8 Ways to save $000’s on your home loan.
At Vesta we are here to help you smash your financial goals. Often this includes paying off your home lending as fast as possible to enable you to achieve the next goal.
Most people don’t realise but when you take out a 30 year mortgage you can expect to pay the bank the same amount in interest alone. For example, for a $500,000 home loan, you will end up paying over $577,000* in interest over the 30 year term.
Naturally the banks aren’t mad about this but we want more for you. There are a number of ways we can reduce this to ensure that some of that goes back into your own balance sheet.
With almost two decades of experience between us we know that there are some cheeky ways to smash down that mortgage and save you $000’s in interest.
Round Up Your Repayments
Majority of home loans are set up with the minimum repayments over the documented term, which is often 30 years. This minimum repayment will be something messy like $691 a week*. If you round up your repayment to say $750 a week you will repay your loan 5.5 years quicker and reduce the total interest you pay to the bank by around $125,000. That’s an extra $59 a week to save $125,000 in interest.
Use an Offset Home Loan
Being in control of your finances often includes having access to savings or an emergency fund if needed. You never know what is around the corner and having access to cash is important. Whilst we need access to these funds, we want to ensure that your hard earned money is still working for you and not lining the banks pockets! You would not believe how much money the banks make off your lazy cash. Now you can stick this money into a high interest savings account however if you do have a mortgage the interest rate earnt will always be lower than the amount of interest you are charged. With an offset home loan you have the ability too offset your savings and transactional accounts against your loan. For example, if you have a $200,000 mortgage and $20,000 in your offset account, you’ll only be charged interest on $180,000. This option is great for those of you like me who like to budget and have different accounts for different costs.
Utilise a Revolving Credit Facility
A revolving credit facility works like an overdraft, allowing you to pay down your mortgage principal quickly by using surplus funds to offset interest. The key to saving interest with a revolving credit is to keep the balance as low as possible. This strategy can work well for larger separate savings or in line with a portion you are looking to repay via lump sums from variable income, bonus or dividends. Ensure you speak to your Vesta advisor to see if this option is the right structure for you.
Dropping to a lower interest rate, keep your repayments the same
Currently we are in a dropping interest rate market. This means that as your home loan comes off its fixed rate it is likely that the rates available to you today are lower than your maturing rate. If your in a position to hold your repayments the same, i.e. not drop down to the minimum rate then you will naturally pay off your home loan faster and reduce your interest cost. This is the same principal as option 2.
Refinance to a Better Rate
The lower the rate, the lower the interest you will pay towards your loan. Rates can fluctuate, so it’s essential to regularly check if your current rate is competitive. If you’ve built equity in your home or your financial situation has improved, you may qualify for a more favourable rate. Refinancing can be a smart option if the savings outweigh the costs involved. It is also very common practice for banks to give cash contributions towards refinances. This means that often any moving costs are covered and makes moving very competitive.
Consider a Shorter Loan Term
Just because the bank says you can have a 30 year mortgage doesn’t mean you have to document it over that term. You may realise that your family budget allows you to contribute a higher amount. If you opted to document your loan term over 20 years, vs the standard 30 years you would save $220,000* in interest over that term. Don’t let lifestyle crept help you line the banks profits. There are pros and cons of reducing your documented term in regards to future flexibility. Please ensure you consult a Vesta advisor before making this decision to ensure that it aligns with your long term financial goals.
Split your loan between fixed and floating rates
Spread your interest rate risk and get the best of both worlds with a split loan strategy. Typically fixed home loan rates are lower than floating home loans however the offset functionality only applies to floating loans. It therefore can be very beneficial to spilt the loan into portions and get the best of both options, reducing your interest rate costs. For the fixed loan you get to lock in a lower rate and have certainty of payment. For the floating portion you can offset savings to reduce interest cost and have more flexibility. Your Vesta advisor can discuss different options for you that align with your goals.
Change from Monthly to Weekly or Fortnightly Repayments
If you’re home loan repayments are monthly, we will often recommend changing this to weekly or fortnightly repayments. Weekly and fortnightly loan repayments make one extra repayment each year without you even realizing it. Whilst this is one of the easiest things to change it will only make a small impact on your interest paid over the life of the loan. I would always recommend ensuring that your repayments align more with your cashflow (i.e. when you get paid) so that it is easier to manage your payments.
In summary
Don’t get complacent with your home loan. It is important that you regularly review your structure and plan to ensure that you are moving forward towards your own goals and getting ahead financially. With implementing a few of these easy steps you can save $000’s of interest and once set up it does not need much of your time, just watch the balance drop and your equity grow.
At Vesta, we take a holistic approach to your finances. We are here to help guide you through the process and achieve your goals. Reach out to one of our advisors today to book in a complimentary financial wellness check were we can review your current set up and ensure it is aligned with your goals.
*based on $500k home loan at 6 month fixed rate or 5.99% p.a. as at 20/01/25. Interest rate at the time and throughout your loan term will impact the interest amount saved.