The way you make repayments may be more important than you think

Written by renxue January 09, 2008 17:19

Most people concentrate on the interest rate when they're trying to save money and time on their home loan. Ultimately, it's the way you attack your repayments that has the biggest effect on the overall term and cost of your loan. Although a lower interest rate certainly helps along the way, rates will inevitably move up and down a lot over 25 years.

  • Make sure interest on your home loan is calculated daily. It's important that any principal repayments you make have an immediate reducing effect on your next interest repayment. So don't accept a home loan that calculates interest on an average monthly balance.
  • If your loan has the flexibility to allow increased regular repayments and lump sum repayments without penalty, take advantage of it whenever you can.
  • If you can, temporarily park extra funds in your home loan, using an offset account, to reduce your principal, which has the effect of reducing the interest component of your next instalment (see tip 8).
  • Make more frequent repayments. Arrange a fortnightly repayment or a weekly repayment. In both cases, you'll actually be making the equivalent of 13 monthly repayments each year, saving you money by reducing the principal and term of your loan.
German : Die Art, wie Sie Rückzahlungen Mai eine wichtigere Rolle spielen als Sie denken Spanish : La forma de hacer los reembolsos pueden ser más importantes que usted piensa French : La façon dont vous effectuer des remboursements mai-être plus important que vous ne le pensez Japanese : あなたの返済以上に重要になるかもしれないと思うする方法 Russian : То, как вы сделаете погашения могут быть более важными, чем вы думаете