Buying a home is one thing, owning it another. Purchasing a house is a major financial decision that will impact your lifestyle for a long time. However, no one wants to reel under debt for the next 25 years or so, and there is no need to, as you can pave your way to financial freedom much faster by simply following some easy tips without feeling the pinch:
Having a good household budget is the first step towards achieving financial freedom. Keep a tab on your expenditure and power up your savings by using our budget calculator. Saving as little as $50 a month and putting it towards a mortgage can save you loads over the life of the loan, as when it comes to home loan repayments, little bit adds up to a lot.
2. Choosing the right home loan
Selecting a home loan that is tailored to your requirements is a must for savvy property buyers. In case you don’t want to be tied in to your loan for the long years you signed up for, do ensure the criterion around additional repayments.
Variable rate home loans are more flexible and usually allow unlimited additional repayments at no cost as well as other features such as redraw facility, line of credit, offset account that can save you tons of money if you plan your loan wisely.
In case you have a fixed rate loan, it makes sense to check the policy around additional repayments as repaying the loan sooner might cost you few thousands and may not be worth it. Confused whether to fix your loan or not we will help you with that.
3. Paying fortnightly instead of monthly
Making fortnightly repayments instead of monthly can be an effective way to cut down the life of your loan as well as interest payments without even feeling the impact on your daily budget.
Fortnightly repayments for a year add up to 13 monthly repayments instead of 12, and while this may not seem like much, using a repayment calculator will quickly show you the big difference this small change could make.
4. Having an offset account
Having an offset account linked to your home loan can be an effective way to slash the life and interest on your home loan. When you open a 100% offset account, the money held in the account is offset against your home loan and interest is charged only on the remaining amount. For example, you owe $300,000 on your mortgage and hold $100,000 in your offset account. This means interest will only be charged on $200,000, significantly bringing down your interest payments.
A good strategy is to receive your salary in the same account and let it sit there, using your credit card for monthly expenditure. Of course, do not forget to pay the credit card bill in time lest you end up with more debt on your hands.
5. Not using credit cards or using them wisely
Using credit cards indiscriminately can land you a pile of high interest rate debt. However, credit cards are not evil if you understand how to use them wisely, and can even benefit you with the reward points and travel miles.
In case you are bad with plastic money or cannot stop piling on credit, give up your credit cards to ensure you don’t find yourself lagging behind your home loan repayments. But if you are game, use your credit card for all your monthly expenditure (strictly as per budget) and let your salary sit pretty in your offset account till the day of your credit card payment. This not only ensures you get max travel miles to satisfy your wanderlust, you also do not miss your credit card payments and as explained above, the salary sitting in your offset account saves you interest on your home loan.
With home loan interest rates at their lowest in the longest time, this is the right time to do a health checkup on your existing loan. Refinancing to a lower rate can help you save precious bucks. Compare home loan rates or get in touch with an expert to have your queries addressed online, free of cost.
By Vidhu Bajaj