Handy Home Loan Tips
Here are some easy tips to give you peace of mind and help you get the most out of your home loan.
Tip #1 – Fixed or Variable Interest Rates
Variable interest rates are influenced by market conditions and during the term of a loan can increase or decrease many times over. If interest rates increase so will the regular repayments you must make. If interest rates decrease your regular repayments will also decrease.
Fixed interest rates allow you to lock in an interest rate for 1, 2, 3, 4 or 5 year terms. For the fixed rate period you select, your interest rate does not change and your regular repayments remain the same. At the end of any fixed rate period you can have your loan convert to a variable interest rate or select another fixed rate period. Fixed interest rates can safeguard against interest rate increases but also mean you will miss out if interest rates decrease during your fixed rate term. And if you want to repay all or part of your loan during your fixed rate period you may have to pay break costs. These fees reimburse a lender for the economic loss they may suffer and can be significant. They will generally only happen if interest rates are lower than your fixed interest rate when you repay your loan. Fixed rates are set when your loan is first advanced not when you apply for the loan unless you choose to lock in a rate earlier (a rate lock fee will apply).
When choosing whether to select a variable or fixed interest rate for your home loan, you need to form a view on whether you think interest rates will generally increase or decrease during the fixed term you are considering. If you think they are more likely to increase and you want the security of knowing your repayments will not change, a fixed rate loan may be the right choice for you. You should also consider whether you are likely to be able to make extra repayments on your loan. The amount you can repay over your normal repayments on a fixed rate loan is limited to $25,000 per year and may impact your decision.
Tip #2 – Split Loans
The question about fixed vs variable interest rates is not always an easy one with the experts even having differing opinions on when and when not to fix. To get the best of both worlds you could consider splitting your loan into two; selecting a fixed rate term for one loan and a variable interest rate for the other. That way you get the security of knowing that your repayments won’t change on the fixed rate portion and flexibility to repay extra and take advantage of any interest rate decreases on the variable rate loan.
Tip #3 – Make Extra Repayments
You can choose to pay extra off any of our home loans at any time. You can make this a habit by adding extra to your regular repayments or you can do this from time to time by paying a lump sum when you have the extra cash available.
Paying extra off your loan has lots of benefits. It can decrease the amount of interest you pay and help you pay off your loan faster. It could let you enjoy a short repayment holiday in the future if the need arises. Or you can use it to save for something special or to cover emergencies by taking advantage of redraw.
If paying off your loan faster is your objective, remember every dollar does matter. Even $5 a week can save you thousands in interest over the life of the loan and reduce your home loan term. Check out our extra repayment calculator to see your possible savings.
Tip #4 – Choose Weekly Repayments
You can choose weekly, fortnightly or monthly repayments on our home loans so it’s easy to match your repayment obligations with your pay periods. If you get paid weekly or fortnightly select the corresponding repayment option. Not only does it make budgeting easier it can also save you interest. We only charge interest to your loan monthly, so when you make weekly or fortnightly repayments the whole repayment amount reduces the loan amount we charge interest on until your interest is actually due.
Tip #5 – Mortgage Offset
A
mortgage offset account is quite separate to your loan. You can use it instead of your everday transaction and savings accounts and instead of earning interest on the money you have deposited, it is offset against the interest you would otherwise pay on your home loan.
Mortgage offset is like making extra repayments off your loan, it can save you interest and help you repay your loan faster. And because you don’t earn interest on your savings, you don’t have to declare the interest on your savings for tax purposes. Check out our Mortgage Offset Account fact sheet for more information.
Tip #6 – Principal and Interest or Interest Only
Principal and interest repayments are calculated so that the amount you have borrowed and the interest you are charged are repaid in full over the agreed loan term. This means that if interest rates stayed the same for the term of your loan, the repayment amount would stay the same. And because the amount you owe is higher at the start of the loan term the part of your repayment that goes towards interest is high and the principal repayment is low. This changes over time as the total amount you owe decreases with the part going towards interest decreasing and the principal repayments increasing.
Principal and interest repayments mean you are repaying your loan and increasing the equity you have in your property. You can then own your home or even use the equity in your home to build wealth through investments.
Some loans allow you to only pay the interest you are charged on the loan for up to the first 5 years of the loan. This feature means that you are not repaying the amount you owe with each regular repayment but is often attractive to investors who are looking to maximise their investment benefits such as negative gearing.
Tip #7 – Reduce Your Risk With insurance
A home and its contents is a valuable asset so making sure they are adequately insured makes perfect sense. Look for an insurance policy like
PremierCare® home insurance1 which offers different levels of cover to suit your requirements and budget.
You should also consider broader risk insurance. A serious accident or illness, unemployment or even death can have a significant impact on you and your family’s life. Who will take care of your loan repayments if you can’t?
PremierCare® Consumer Credit Insurance2 could cover your specific loan obligations or we can refer you to our financial planning subsidiary,
Eastwoods Wealth Management , who can help you with a broader risk review and other insurance.
Important Information
For specific details on insurance products please refer to the relevant Product Disclosure Statement (PDS) which is available from us or download a copy by clicking here. You should consider the PDS and whether the product is appropriate for you before deciding whether to acquire the product.
1Home Insurance is provided by Allianz Australia Insurance Ltd AFS licence no. 234708 ABN 15 000 122 850 (Allianz). 2Disability cover (Part 2) and unemployment cover (Part 3) is provided by Allianz. Death cover (Part 1) is provided by Allianz Australia Life Insurance Limited AFS licence no. 296559 ABN 27 076 033 782 (Allianz Life) Allianz acts as Allianz Life’s agent in offering and administering Part 1 death cover.
In arranging these insurances Community CPS Australia Ltd acts as agent for Allianz and not as your agent. Neither we nor any of our subsidiary or related companies guarantees the benefits payable under the policies or the repayment of any premium. If you purchase an insurance product we will receive a commission from the insurer that is a percentage of the premium. Please ask us for more information before acquiring this service.
PremierCare® is a registered Trade Mark of Community CPS Australia Limited.
