First question, would you like pay off your loan sooner? If so then get educated. There are many ways borrowers can pay off their loan faster thus creating savings many hundreds, if not, thousands of dollars in the process. These tips are not hard to implement. Just by setting goals and disciplines can achieve this.
1. Make additional repayments and the frequency Loans are generally calculated on a daily balance. So by making additional repayments on top of the minimum repayments set by the lender, you will be ahead of mortgage commitments. This option is common under a variable loan facility however of recent times, there are lenders that will allow you to make additional repayments to a fixed rate without penalties. Your accredited broker will be able to assist you here. Note: some loans by making additional repayments may trigger a early repayment fee.
As discussed above, by making additional repayment, the borrower will be reducing their principal. So following on with additional repayments are frequency of repayments. Most brokers will recommend that you make monthly repayments, why this will provide you with an event flow of repayments and it looks better from a cash flow perspective. However when the lender calculates the daily balance, it will be better if the loan frequency was make fortnightly.
2. Beware of specials Lenders these days are marketing their products to gain a point of difference. So what specials am I talking about? Professional Package Fee is one of the most common traps for young borrowers.
What is a Professional Package? In simple terms, the borrower pays a set fee for free fee banking. This fee is generally charged on a yearly basis. Some lenders who charges Professional Package Fee further changes for banking services.
What is the catch you may ask? Professional Package Fee is generally applicable to loan sizes greater than $250,000. There is a reason for this. Loans sizes on about $250,000 will not reap great benefits from the professional package fee. This is because the borrower is paying a set monthly fee to have this feature. However if your loan size if substantial and you utilize features like credit cards, transaction accounts, insurance, and etc, then this might be worth while. The question that you will need to ask is, do you use any of the proposed banking features? If not, then stick to a Basic Loan. It will save you money in the long run.
3. Debt Consolidation It is easier to pay off one loan rather than multiple loans. You might find by consolidating your loans, you will increase your cash flow. By sticking to the tips above, increasing the repayments here will pay off your loans a lot sooner. Also by locking your rate in the event of interest rises, will also ensure that you are protecting yourself against interest rate rises.
Interest rate rise on bad loan products like credit cards, car loans, and personal loans could be much higher than your home loan. Many lenders will allow you to consolidate your debt under the umbrella of your home loan. This means that instead of paying a higher percentage of interest on your credit card or personal loan, you can transfer these debts to your home loan and pay it off at a more reasonable percentage.
Remember the more you put in and the more frequent it is, the loan can be paid off a lot sooner.
4. Split loans Expanding from point 4, if you have a car loan, you do not want to pay it off in 30 years. You want to pay it off in 3 or 4 years. So in order to do this, some lenders will allow borrowers to split their loans. This will allow the borrower to monitor and maintain each loan under the same umbrella. Still one repayment but you can choose to target a specific split loan first.
5. Pay your mortgage insurance, and other bank / government charges up front Some lenders will allow the borrower to capitalize the mortgage insurance and other charges on top of the loan. This will increase the time taken to repay the loan. If at all possible, borrowers should always seek to pay this upfront rather than borrowing this amount.
