Housing confidence puts spotlight on home loan health

As experts predicted signs confidence might return to the housing market, RACQ warned borrowers to stay focused on paying off their home loan.

Domain reported early signs of a boost to market confidence, particularly as first home buyers welcomed the Government’s proposed first home loan deposit scheme.

RACQ spokesperson Renee Smith said the recent Federal Election results and a hint by the Reserve Bank of Australia of a drop to the official cash rate next week, had sparked confidence in the housing market.

“The planets seem to be aligning for first home buyers, which is great news, but it’s a timely reminder for people already paying off mortgages to actively find ways to reduce their interest repayments and clear their home loan debt as quickly as possible,” Ms Smith said.

“Making small changes to the way you manage your home loan can result in big savings over the life of your loan.

“We’ve put together these home loan hacks to provide the inspiration you may need to talk to your bank about how to implement some of these tips.”

RACQ’s top tips to reduce your home loan:

Pay it out as soon as it lands
The quicker your repayment hits your loan the quicker the balance is reduced for those interest calculations to occur. Change your monthly repayment to weekly or fortnightly repayments.

Stretch it
Stretching your repayments, even just a little, could make a big difference in the long run. Try rounding up to a flat $100 if you can, for example, if your repayment is $1,234, round it up to $1,300.

Dump any extra cash on your loan to get the principal down
The ‘principal’ is the initial amount of money you borrowed and each repayment of a ‘principal and interest’ loan is compiled of both a principal and interest amount. The proportion of interest to principal reduces over the term of the loan, because there is gradually less principal to calculate the interest on. So if you have any extra money in savings, if you make some extra cash selling furniture on Gumtree, or get a bonus at work, think about tipping some of that into your home loan.

Don’t budge, even if they do
Should your bank decide to reduce interest rates, your minimum monthly payment would normally reduce too. Our tip is to not decrease your repayment amount. If you can maintain the same repayment, you’ll help make those all extra principal payments without impacting your current budget.

Offset it
Offset accounts are still a popular way of using your cash reserves to “offset” your home loan balance. The balance in your offset account will reduce the interest payable on your home loan, as the home loan interest is only charged on the net balance between the two. Talk to your bank about this.

Build a relationship
Build a relationship with your local branch or mobile banker and insist on regular home loan health checks as part of their service to you. Be proactive and manage your home loan stringently, and make sure you are on the best product and are getting the best service.

The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person’s particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs.