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Four simple ways to save thousands on your home loan

In this article:

Want to pay less interest on your home loan and get out of debt faster? Read on…

When you take out a home loan, the amount of interest you pay adds up over the life of the loan. In fact, if you take the full 25 years of the loan, it can almost double the principal amount – i.e. the amount you borrowed.

But there are ways to cut the cost of interest, if you’re savvy about it.

1. Pay your loan off faster

This may sound obvious, but sometimes people underestimate just how much you can save by doing this. The Yellow Brick Road Extra Repayment Calculator shows that on a $400,000 home loan, paying an additional $250 per month would mean:

  • You save almost $52,000
  • You pay off the loan 5 years and 7 months earlier[i]

Think you can’t afford it? Perhaps you can, with a bit of belt-tightening.

That additional repayment works out to just over $8 per day. If two people in your household are buying coffees each day, you could ditch the coffee and find the funds for your extra payments.

The results from this calculator is an indication only. The results do not represent either quotes or pre-qualifications for a loan. The specific details of your loan will be provided to you in your loan contract. It is advised that you obtain independent legal and/or financial advice before taking out a loan.


Important information
These calculations do not take into account any fees, charges, your goals and objectives. The results provided by these calculators are an approximate guide only. These calculators, or the results generated, do not constitute any agreement by us to provide credit assistance. Applications are subject to normal lending guidelines.

2. Get a better interest rate

Home loans may be a long-term debt, but they shouldn’t be set-and-forget. Lenders change their interest rates and loan terms over time, sometimes outside of the Reserve Bank’s interest rate cycles.

And that’s assuming you got the best rate possible in the first place – not everyone shops around as much as they could.

All of this means you should check in with your local mortgage broker to see if you can get a better rate. Refinancing could save you thousands over the life of the loan.

On the loan mentioned above, you’d save $33,683.69 by moving from an interest rate of 4.04% p.a. to the Yellow Brick Road Rate Smasher at 3.63% p.a.

Plus, you’d be paying almost $100 less as the minimum repayment each month. That’s money you could either add to your household budget, or ideally, pay off as an additional amount.

3. Combine no. 1 and no. 2 … and turbocharge your savings!

If you get a better interest rate as well as making additional repayments, you can save serious money. We’ve used the Yellow Brick Road Compare Loan Repayments calculator to run two scenarios.

The blue bar shows what would happen if you paid the loan off five years faster (by making extra repayments), as well as moving to a lower rate.[ii]

4.Use offset or redraw facilities

These work in slightly differently ways have the same effect: they reduce the amount that your interest is being calculated on.

If you think about it, 4% of $100,000 is much less than 4% of $150,000. So, you want to be paying interest on a smaller principal amount.

Redraw – this lets you access any additional funds you’ve paid into a home loan, above the minimum repayment.

For instance, if your minimum monthly repayment is $2,100 and you choose to pay $3,000 per month, after 3 months, you will have paid an additional $2,700 into the loan.  This amount can then be “redrawn” if you need to access it in the future.

Offset – this is an account where the balance “offsets” the interest charged on your linked mortgage account. For instance, if you have $10,000 in an offset and $200,000 on your loan, you only pay interest on the equivalent of $190,000. 

This cuts out the middle man in the redraw scenario, by making the funds available in the nominated bank account straight away.

There you have it: four different options to get ahead and make more of your home loan. If you want to know more, talk to us.

 

Take the first step

[i]Assumptions

The information provided is for general use only and cannot be construed as advice. The results do not represent either quotes or pre-qualifications for a loan. The specific details of your loan will be provided to you in your loan contract. It is advised that you obtain independent legal and/or financial advice before taking out a loan.
Important information

The calculations within this document do not take into account any fees, charges, your personal goals or objectives. The results provided by these calculators are an approximate guide only. These calculators, or the results generated, do not constitute any agreement by us to provide credit assistance. Applications are subject to normal lending guidelines. See ybr.com.au for more details.
This calculator will show the amount you could save if you make extra repayments at each period instead of the minimum amount. Starting the extra repayments earlier on in the loan will have a greater increase in the interest and time saved.

Assumptions:

  • Interest rates remain the same for the term of the loan.
  • One year is 52 weeks exactly, a month is 52/12 weeks and a fortnight is 26 weeks.
  • Interest is calculated by compounding on the same frequency as the repayment stated, i.e. weekly, fortnightly or monthly.
  • Repayments are made at the start of each period.
  • Rounding is made at the end of the calculations and not at each payment period
  • It does not take into account up-front fees and monthly/annual account fees.
  • You can email your results to yourself and if you request, a copy of your results and contact information is sent to the web site owner.
  • You can print your results for future reference.
  • You should consult a finance professional before you make any.

Loan term – 30 years
Loan amount $ 400,000
Interest rate 3.63% p.a.
Repayment frequency Monthly
Extra monthly repayments $250
Start extra repayments a Year 1

[ii]  Assumptions

The information provided is for general use only and cannot be construed as advice. The results do not represent either quotes or pre-qualifications for a loan. The specific details of your loan will be provided to you in your loan contract. It is advised that you obtain independent legal and/or financial advice before taking out a loan.


Important information
The calculations within this document do not take into account any fees, charges, your personal goals or objectives. The results provided by these calculators are an approximate guide only. These calculators, or the results generated, do not constitute any agreement by us to provide credit assistance. Applications are subject to normal lending guidelines. See ybr.com.au for more details.
This calculator compares 4 different loan scenarios using the minimum required inputs.
The end statement compares the least expensive loan with the most expensive loan and shows the difference between the two.

Assumptions:

  • One year is 52 weeks exactly, a month is 52/12 weeks and a fortnight is 26 weeks.
  • Interest is calculated by compounding on the same frequency as the repayment selected, i.e. weekly, fortnightly or monthly.
  • Repayments are made at the start of each period.
  • Rounding is made at the end of the calculations and not at each payment period.
  • It does not take into account up-front fees and monthly/annual account fees.
  • You can email your results to yourself and if you request, a copy of your results and contact information is sent to the web site owner.
  • You can print your results for future reference.
  • You should consult a finance professional before you make decisions based on this calculator.

Test case 1:

  • 30 year loan term
  • 4.04% p.a. interest rate
  • Monthly minimum repayments (P&I)
  • Loan amount $400,000

Test case 2:

  • 30 year loan term
  • 3.63% p.a. interest rate
  • Monthly minimum repayments (P&I)
  • Loan amount $400,000

Test case 3:

  • 25 year loan term
  • 3.63% p.a. interest rate
  • Monthly minimum repayments (P&I)
  • Loan amount $400,000

Test case 4:

  • 25 year loan term
  • 3.63% p.a. interest rate
  • Monthly minimum repayments (P&)
  • Loan amount $400,000

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