Home loan repayment options
There is an endless amount of choice when it comes to home loan repayments options.
The great news is you can set up your repayments to match your needs and circumstances. Often home buyers are surprised by the variety of options available.
Principal plus interest
The most popular choice among home owners, for good reason – as each repayment made covers the interest plus an amount of the loan balance.
In the early days of your loan, interest is likely to make up a large proportion of the payment. However as you start to reduce the loan balance the interest cost will reduce and the loan repayment will gradually increase.
One way to set up and manage your principle plus interest home loan repayments is to align the payments with your regular pay cycle. Mortgage repayments are worked out on a monthly basis however most lenders will allow you to pay weekly or fortnightly.
An interest only loan will lower your monthly commitment however keep in mind you won’t be paying off any of the loan balance. Whilst good for investors and may sound budget friendly for a home owner it is something that should be considered with care – especially if being discipline with money isn’t one of your strengths. As a home owner it’s worth aiming to have your place paid off at some stage, whilst most interest only loans allow you the option to make additional repayments (paying down the loan balance) it’s important to consider if it would be the right option for you.
Lenders generally only permit interest only payments for a set period (up five years in most cases).
Most variable and some fixed loans (fixed have limits to the amount of extra repayments) allow flexibility to make extra repayments at any time. This flexibility can be the key to paying off your loan sooner.
Quick tip, by halving your monthly principle and interest repayment and paying every fortnight you’ll pay down your loan faster. Instead of paying 12 monthly payments per annum you’ll pay 13. For example on a $300,000 loan over 30 years with an interest rate of 5% paying half monthly per fortnight will result in paying off the loan in 25 years and saving $51,490 in interest expense.
Home owners aren’t restricted to choosing between fixed or variable. You can choose to fix a portion of your loan and have the rest variable. Allowing you to make the most of the flexibility of a variable rate whilst having the security of a fixed rate.
At Hunter Galloway – Home Loan Experts, we have access to a wide range of lenders and literally hundreds of products. We do all of the legwork on your behalf so that you won’t have to worry about a thing.
Contact us today – Nathan Vecchio – 0410 000 689