For Inner West homeowners, making extra repayments on your home loan can significantly reduce the total interest paid and shorten your loan term. As a Home Finance & Mortgage Broker, Shield Mortgage Brokers helps clients understand how strategic additional payments can transform their financial situation and build home equity faster.
Understanding Extra Repayments
Extra repayments are additional amounts paid towards your loan amount beyond the minimum required monthly payment. These payments directly reduce the principal balance, which means less interest accumulates over time. Whether you have a variable interest rate or fixed interest rate home loan, extra repayments can work effectively with most Home Loan options.
Strategic Approaches to Extra Repayments
1. Regular Additional Payments
Adding a consistent amount to your regular repayments creates a disciplined approach to debt reduction. Consider these options:
• Add $50-200 to your monthly repayment
• Make fortnightly payments instead of monthly payments
• Apply annual bonuses or tax refunds directly to your loan
When calculating home loan repayments, even small additional amounts compound over time. For a $500,000 loan with a 6% home loan interest rate, an extra $200 monthly could save over $100,000 in interest and reduce the loan term by approximately seven years.
2. Utilise an Offset Account
An offset account functions as a transaction account linked to your home loan. The balance in this account offsets the loan amount for interest calculation purposes. For example, if you have a $400,000 loan and $50,000 in your offset account, you only pay interest on $350,000.
Benefits of offset accounts include:
• Immediate interest savings without making permanent extra repayments
• Maintaining access to your funds for emergencies
• Tax advantages for investment properties
• Flexibility to withdraw funds when needed
Timing Your Extra Repayments
During Fixed Interest Rate Periods
Fixed interest rate home loans often have restrictions on extra repayments, typically allowing $10,000-30,000 annually without penalties. Review your loan terms or consult with our team about your specific conditions.
With Variable Home Loan Rates
Variable interest rate loans generally offer unlimited extra repayment facilities. This flexibility allows you to increase payments when your financial situation improves or reduce them during tighter periods.
Maximising Your Repayment Strategy
Assess Your Borrowing Capacity
Before committing to extra repayments, ensure your borrowing capacity can handle increased payments without straining your budget. Consider:
• Emergency fund requirements
• Upcoming expenses like stamp duty for property purchases
• Changes in income or employment
• Other debt obligations
Consider Your Loan to Value Ratio (LVR)
Extra repayments improve your LVR by reducing the outstanding loan amount whilst your property value remains stable or increases. A lower LVR can help you:
• Avoid or remove lenders mortgage insurance (LMI)
• Access interest rate discounts
• Qualify for refinancing options
• Build substantial home equity
When Extra Repayments Make Sense
Extra repayments work particularly well when:
• Interest rates are high
• You have stable employment and income
• High-interest debts are already cleared
• You're not buying a home or expanding your property portfolio soon
• Your financial situation allows for consistent additional payments
Alternative Strategies
Home Loan Pre-approval for Investment
Instead of making extra repayments, some Inner West clients choose to get pre-approved for investment property purchases. This strategy can provide rental income and potential capital growth whilst maintaining tax deductions.
Reviewing Your Home Loan Options
Regularly reviewing your Home Loan application with banks and lenders across Australia can identify opportunities for:
• Lower Home Loan Rates
• Improved loan features
• Reduced fees
• Enhanced offset facilities
Our streamlined application process helps assess whether refinancing or restructuring your current loan could provide similar benefits to extra repayments.
Making Informed Decisions
As your Home Finance & Mortgage Broker, we access Home Loan options from banks and lenders across Australia to ensure your repayment strategy aligns with your goals. Our expertise in the property market and understanding of various lenders' terms helps optimise your approach.
We review your bank statements, assess your application process requirements, and provide clear guidance on how extra repayments impact your specific loan structure. This comprehensive approach ensures your strategy supports both immediate savings and long-term financial objectives.
Extra repayment strategies can save Inner West homeowners substantial amounts in interest costs whilst building wealth through increased home equity. The key lies in choosing the right approach for your circumstances and maintaining consistency in your additional payments.
Call one of our team or book an appointment at a time that works for you to discuss how extra repayment strategies can accelerate your home loan payoff and strengthen your financial position.
