How to Manage Your Home Loan Like a Pro

Buying a home is one of the biggest financial decisions you’ll ever make. It can also be one of the most rewarding, as you get to enjoy the benefits of homeownership, such as stability, security, and equity. But owning a home also comes with a lot of responsibility, especially when it comes to managing your home loan. A home loan is a long-term commitment that can have a significant impact on your finances and your lifestyle. That’s why it’s important to be smart about your home loan and find ways to save money and pay it off faster. In this blog post, I’ll share with you some of the best tips and tricks to manage your home loan like a pro in Australia. I’ll also give you some insights into the current state of the home loan market in Australia, and how you can take advantage of the opportunities and challenges it presents. So, whether you’re a first-time home buyer, a seasoned investor, or somewhere in between, this blog post is for you. Read on to learn more! 

The Current State of the Home Loan Market in Australia 

Before we dive into the tips and tricks to manage your home loan, let’s take a look at the current state of the home loan market in Australia. According to the latest data from the Australian Bureau of Statistics (ABS), the average new home loan in Australia for people buying an existing property was $593,047 in July 2023, up 2.1% on the month before. The average figure for a loan for buying a newly built home was $591,083, up 2.4% on the previous month, and $595,970 for a loan to build a new home, up 3.1% on the previous month. Across the nation, New South Wales had the highest average new home loan amount at $762,238, followed by Victoria at $629,727, and the Australian Capital Territory at $636,8311. The lowest average new home loan amount was in the Northern Territory at $421,5001.  

The average variable home loan rate on the market in September 2023 was 6.76%, according to AFG. From our broker who is accredited with AFG the lowest variable home loan rate is about 5.72%. The average fixed home loan rate on the market in September 2023 was 6.83%.  

The home loan market in Australia is influenced by various factors, such as the supply and demand of housing, the economic conditions, the consumer confidence, the competition among lenders, and the monetary policy of the Reserve Bank of Australia (RBA). The RBA is the central bank of Australia, and it sets the official cash rate, which is the interest rate that banks pay to borrow or lend money to each other overnight. The official cash rate affects the interest rates that banks charge their customers for home loans and other products. The RBA uses the official cash rate as a tool to achieve its objectives of price stability, full employment, and economic prosperity for Australia. 

The RBA responded to the COVID-19 pandemic and its economic impact by setting the official cash rate at a historic low of 0.1% in November 2020. The RBA then introduced other policies to boost the Australian economy, such as purchasing government bonds to bring down the long-term interest rates and offering low-cost funding to banks to stimulate lending.

The low interest rate situation from 2020 to 2022 was a great opportunity for home buyers and borrowers, as it made home loans cheaper and easier to get. However, it also led to the skyrocketing of housing prices, as more people entered the market, influenced by the fear of missing out, the government incentives, and the desire for larger and more comfortable homes. The high housing prices also raised the risk of overborrowing and overleveraging.

Fast forward to 2023 and interest rates are at decade highs with some borrowers finding it hard to repay their loans as interest rates increase and the cost of living keeps rising. Therefore, it is vital for home buyers and borrowers to be careful and sensible when taking out a new home loan or managing their existing one and to plan ahead for any possible changes in the future.

Tips and Tricks to Manage Your Home Loan Like a Pro 

Now that you have a better understanding of the home loan market in Australia, let’s move on to the tips and tricks to manage your home loan like a pro. Here are some of the things you can do to save money and pay off your existing home loan or new home loan faster: 

1. New Home Loan – Shop around for the best home loan deal 

One of the most effective ways to save money on your home loan is to shop around for the best deal. Don’t settle for the first offer you get, or the one from your current bank. Compare different home loan options from different lenders, and look at the features, fees, and interest rates. You may be surprised by how much you can save by switching to a better home loan deal. For example, if you have a $500,000 home loan with a 25-year term and a 6.76% variable interest rate (the market average), you would pay $3,505 per month and $550,602 in total interest. But if you switch to a 5.72% variable interest rate, you would pay $3,143 per month and $442,902 in total interest. That’s a saving of $362 per month and $107,700 in total interest. 

To help you compare home loans, you can use online tools and calculators.  Alternatively, you can consult our mortgage broker, who can help you find the a home loan deal for your needs and circumstances. A mortgage broker is a professional who acts as an intermediary between you and the lenders. They can assess your financial situation, compare different home loan options, negotiate with the lenders, and guide you through the application and settlement process. A mortgage broker can also give you advice on how to manage your home loan and achieve your financial goals. To book a free session to discuss your home loan, investment loan or debt structure please click here now or call 03 4411 8744. 

2. Make extra repayments whenever you can 

Another way to save money on your home loan is to make extra repayments whenever you can. By paying more than the minimum amount required, you can reduce your home loan balance and the interest you pay over the life of the loan. You can also shorten the loan term and become debt-free sooner. For example, according to Canstar, if you have a $500,000 home loan with a 25-year term and a 6.76% variable interest rate, and you make an extra repayment of $100 per month, you would save $23,704 in interest and pay off your loan 1 year and 8 months earlier. If you make an extra repayment of $200 per month, you would save $43,867 in interest and pay off your loan 3 years and 1 month earlier. 

You can make extra repayments in various ways, such as using your savings, bonuses, tax refunds, inheritance, or windfalls. You can also use your income, by setting up a direct debit or transfer. You can also use your expenses, by cutting down on unnecessary spending, such as eating out, entertainment, subscriptions, or impulse purchases. The key is to be consistent and disciplined, and to make extra repayments a habit. However, before you make extra repayments, make sure you check with your lender if there are any fees or penalties involved. Some lenders may charge you a break fee or an early repayment fee if you make extra repayments on a fixed rate home loan. Some lenders may also limit the amount or frequency of extra repayments you can make on a variable rate home loan. Therefore, it is important to read the fine print and understand the terms and conditions of your home loan contract. 

3. Use an offset account or a redraw facility 

If you want to save money on your home loan without locking away your funds,  you can use an offset account or a redraw facility. An offset account is a savings or transaction account that is linked to your home loan. The balance in your offset account is deducted from your home loan balance when calculating the interest you pay. For example, if you have a $500,000 home loan and a $50,000 offset account, you only pay interest on $450,000. A redraw facility is a feature that allows you to withdraw any extra repayments you have made on your home loan. For example, if you have a $500,000 home loan and you have paid an extra $50,000, you can redraw that amount if you need it. Both an offset account and a redraw facility can help you save money on your home loan, as they reduce the interest you pay. They also give you flexibility and access to your funds, in case of an emergency or an opportunity. However, they may also come with fees or restrictions, depending on your lender and your home loan type. Therefore, it is important to compare different home loan options and choose the one that suits your needs and preferences. 

4. Switch to a shorter loan term or a higher repayment frequency 

Another way to save money on your home loan is to switch to a shorter loan term or a higher repayment frequency. A shorter loan term means that you pay off your home loan in a shorter period of time, such as 20 years instead of 30 years. A higher repayment frequency means that you pay more often, such as fortnightly or weekly instead of monthly. Both options can help you save money on your home loan, as they reduce the interest you pay over the life of the loan. They also help you build equity faster and become debt-free sooner. For example, according to Canstar, if you have a $500,000 home loan with a 25-year term and a 6.76% variable interest rate, and you switch to a 20-year term, you would save $97,198 in interest and pay off your loan 5 years earlier. If you switch to a fortnightly repayment frequency, you would save $83,732 in interest and pay off your loan 4 years and 2 months earlier. 

However, switching to a shorter loan term or a higher repayment frequency also means that you have to pay more each time, which may affect your cash flow and budget. Therefore, you need to make sure that you can afford the higher repayments and that you have enough savings or income to cover any unexpected expenses or emergencies. You also need to check with your lender if there are any fees or penalties involved in changing your loan term or repayment frequency. Some lenders may charge you a switching fee or a variation fee if you change your home loan contract. Some lenders may also have minimum or maximum limits on the loan term or repayment frequency you can choose. Therefore, it is important to read the fine print and understand the terms and conditions of your home loan contract. 

5. Refinance your home loan to a lower interest rate 

One of the most popular and effective ways to save money on your home loan is to refinance your home loan to a lower interest rate. Refinancing means that you replace your existing home loan with a new one, either with the same lender or a different one. The main benefit of refinancing is that you can take advantage of the lower interest rates in the market and save money on your home loan. You can also use refinancing to access other benefits, such as better features, more flexibility, or cash out equity. For example, if you have a $500,000 home loan with a 25-year term and a 6.76% variable interest rate, and you refinance to a 5.72% variable interest rate, you would save $107,700 in interest and pay off your loan 2 years and 9 months earlier. 

However, refinancing also comes with some costs and risks, such as application fees, valuation fees, discharge fees, break fees, and mortgage insurance. These fees can add up to thousands of dollars, and may outweigh the savings you get from refinancing. Therefore, you need to do your homework and calculate the break-even point, which is the time it takes for the savings from refinancing to exceed the costs of refinancing. You also need to consider your financial goals and situation, and whether refinancing is suitable for you. For example, if you plan to sell your property soon, or if you have a fixed rate home loan with a high break fee, refinancing may not be worth it. Therefore, it is important to compare different refinancing options and seek professional advice before making a decision.  Feel free to ask us for free if you would like assistance. 

Conclusion 

Managing your home loan is not a one-off task, but an ongoing process. You need to regularly review your home loan and look for ways to save money and pay it off faster. By following the tips and tricks in this blog post, you can manage your home loan like a pro in Australia. You can shop around for the best home loan deal, make extra repayments whenever you can, use an offset account or a redraw facility, switch to a shorter loan term or a higher repayment frequency, or refinance your home loan to a lower interest rate. These strategies can help you reduce your home loan balance and the interest you pay, and achieve your financial goals sooner.  

However, you also need to be aware of the fees, penalties, and risks involved in managing your home loan, and make sure that you can afford the changes and cope with the uncertainties. Therefore, it is important to do your research, compare different options, and seek professional advice before making any decisions. 

We hope you enjoyed reading this blog post and found it useful. If you have any questions, comments, or feedback, please feel free to pass them on to us. We would love to hear from you and learn from you. Thank you for your time and attention. 

7Wealth Pty Ltd ABN 44609210246 is a Corporate Authorised Representatives and is authorised through Cobalt Advisers Pty Ltd ABN 64 628 654 099 who is an Australian Financial Services Licensee 512550. 7Wealth Pty Ltd is a Credit Representative of Australian Finance Group Ltd ABN 11 066 385 822 (AFG) Australian Credit Licence 389087. 

This blog contains information that is general in nature. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Cobalt Advisers Pty Ltd nor their directors, employees or authorised representatives, do not give any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document.