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Making the most of your home loan

Here are some tips that can help you make the most of the current low interest rate environment and get ahead with your home loan.

The current environment

There’s no doubting that we’re in a low interest rate environment. The Reserve Bank of Australia has twice lowered the cash rate so far this year, which ultimately has a direct affect on bank interest rates. The cash rate currently sits at 1% - the lowest in history. So, who knows what’s to come? We’ve listed some tips to make the most of it all.

Your home loan repayments

If your home loan rate reduces, it might mean that your minimum repayment amount also reduces. While it can be tempting to reduce your current repayment to the lower amount, it’s beneficial in the long run to either continue paying the current amount, or make extra repayments to really get the most out of your money to help reduce the amount of interest you’ll end up paying.

The power of extra repayments

Let’s use Laura’s home loan as an example. Laura has 25 years left on her home loan and a balance of $300,000. The interest rate is 4.00% p.a. and she makes fortnightly repayments. Laura decides that she has the capacity to contribute an extra $100 to her fortnightly repayments. If she keeps this up for the remaining loan term, Laura will:

  • Save $36,481 in interest.
  • Pay off her loan four years and eight months early.

It doesn’t need to be forever

You can see the positive impact that extra repayments can make to a home loan in Laura’s example above. It doesn’t take 25 years to see the benefits of extra repayments though. Making extra repayments for one or two years is even enough to significantly reduce the interest payable on your loan.

There are other ways too

Aside from extra repayments, an offset account or redraw facility are two other ways that can help to make the most of your money and have a positive impact on your home loan. An offset account is a transaction account (like your S1 Everyday Account) that is linked to your home loan. The money that you have in this account offsets your total home loan balance, and you’re only charged interest on the difference.

A redraw facility is different to an offset account. It allows you to access extra repayments that you’ve made on your home loan. Maintaining an available redraw balance will continue to reduce the total interest that you’re paying on your home loan.

Paying off other debt

A tip to reduce your overall debt is to pay off the debt that has the highest interest rate first. The interest rates for personal loans, credit cards and car loans are typically higher than home loan interest rates. Paying off other debt may then free up funds to make extra repayments into your home loan.

To see the impact that extra repayments could make to your loan, check out our Extra Repayments Calculator.