Managing home loan repayments

If only our home loans would pay themselves off or repayments were so minimal they barely make a dent in our bank accounts. Unfortunately, for most of us that is not the case, so let’s take a closer look at these pesky home loan repayments.

Home loan payments, or repayments, are the amounts of money a borrower agrees to pay their financial institution to repay a mortgage.

Home loan payments are typically made at a scheduled frequency such as weekly, fortnightly or monthly, depending on what the borrower and lender agrees upon.

Increasing the frequency of your home loan payments, such as moving from monthly to fortnightly, may reduce the overall interest paid on a home loan, but this will depend on how a lender calculates interest. For more information on this, contact your lender.

The size of a home loan payment is determined by a number of variables such as the size of the loan, the rate of interest paid, the loan term and the repayment type – that is, interest and/or principal, among other things. By tweaking one or more variables, the size of the home loan payments may be adjusted.

Let’s tweak the loan term as an example. For a $300,000 home loan repaid at a rate of 6 percent over 30 years, home loan payments may be around $1799 per month. By reducing the loan term to 25 years, home loan payments may increase by $134 each month, saving the borrower more than $67,000 in total interest.

Switching to a lower interest rate home loan may have a similar effect. Using the above example and refinancing to a lower rate of say, 5.5 percent, may seem insignificant. But on the contrary, the potential long-term savings are evident: reducing the rate of interest by 50 basis points could save a borrower more than $34,000 over 30 years, which is not small change!

Try using a home loans calculator to see how much you could potentially save on your home loan by adjusting the repayments or rate. Finally, compare home loans to see if your lender is competitive with the market – it could be the best return on your time you’ll get all year!

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