Refinancing can be a great way to ensure your home loan meets your needs.
Continue the momentum by considering these steps to ensure you get the most out of your new home loan.
1. Increase your repayment amount
Paying more than the minimum repayment amount is an obvious way to pay off your home loan faster.
If refinancing led to a lower interest rate and smaller repayment amounts, consider continuing to pay the same amount that you did with your old loan. This will reduce the amount of interest you pay and help you to get ahead of your repayment schedule.
If you’re not able to add a bit extra to your regular repayments, there may still be times when you could boost the amount you're paying off.
If you receive an annual bonus from your work or a refund at tax time, putting part of it on your home loan will reduce the amount of interest you pay.
2. Increase the repayment frequency
If you usually make your home loan repayments monthly, you could squeeze in a couple of extra repayments each year by paying fortnightly or weekly instead.
Because there are 12 months in a year, but 26 fortnights or 52 weeks, swapping to fortnightly or weekly repayments means you could make 13 months’ worth of repayments in a 12-month period.
This means you’ll not only pay off your home loan faster, but will be saving on interest in the long run.
Use the BCU Bank home loan repayment calculator to see the difference making more frequent repayments could make.
3. Pay down debt
If your home loan repayments are smaller or you receive a pay rise, you may find you have some extra cash. Putting this towards your other debts, such as credit cards, personal loan, or a car loan, can help you to incur less interest and pay off your debts sooner.
Some people like to tackle the debt with the highest interest rate first, while others focus on closing out smaller debts so you have fewer individual repayments. To help choose the right method for you, consider how reducing each debt would impact your financial situation.
4. Create an emergency buffer
Having an emergency buffer could mean less pressure in your finances if your circumstances change.
There are a few ways you could use your extra cash as an emergency buffer:
- Regularly add extra money on your home loan so you’re ahead in payments.
- If your home loan has an offset account, using it like a savings account can help you reach your savings goals while working to offset interest. Find out more about offset accounts.
- Stash your extra cash in a savings account or term deposit.
