Tips to save interest

26.02.16 | Marc Barlow | Resources

Tips to save interest

Try these simple tips:

  • Rather than spending  any large lump sums you receive, pay them straight into your loan. Think of windfalls like your tax refund, an inheritance, your annual bonus, an insurance payout or an unexpected cash gift.
  • If your budget allows, make more than the minimum mortgage repayment your lender requires. The extra $10 or $20 may not seem like much at the time but the magic of compounding interest means that these small extra repayments will make a difference to the term of your loan and how much interest you pay.
  • Follow a fortnightly or weekly repayment schedule rather than monthly. You will end up putting more money towards your mortgage over the course of a year than if you make payments monthly.
  • Use an offset account:This account is simply your day to day bank account but with one simple difference. It is connected to your mortgage and any funds in there offset funds owing on the mortgage for that day. If, for example, you have $5000 in the offset account you won’t pay interest on $5000 of your mortgage.

    This isn’t for everyone but some clients are using the interest free days on the linked credit card, leaving their wages accumulating in the offset account for as long as they can. This way they get to use the banks money for their spending while their own money saves mortgage interest. Because they are not paying as much interest, more of their monthly payment is coming off the amount they owe. Rewards points can also accrue on the credit card but I issue a word of warning here, this method only works for those who budget carefully. The credit card can be a loaded gun otherwise!

    I recommend starting slowly by shelving the credit card during the first year of home ownership, to adjust to the new expenses that come along. A simple method of saving interest during this time is to withdraw only the cash you need from the ATM. If you only need $40, take just that. If you take $100 just in case, you’re suddenly paying daily interest on the $60 that is sitting in your pocket.