It’s time to set up your New Year’s resolutions and one important resolution you could be considering is to do with a home loan. So we’ve created a list of five ideas you can review and see for yourself if they align with your goals.
1. Reviewing Your Goals
Defining your goals is a great way to start with your New Year’s resolutions. This way you can get an accurate idea of what you want to achieve and then work out from there the way to achieve it. Make sure you set a deadline to achieve it as well.
For example, if you are looking at saving for a new home loan you should get an idea of the area you want to move into, the size of the house or apartment, and from here work out the amount of money you need to save.
2. Saving for a Home Loan
If you’re a first home buyer, next home buyer, or working towards an investment property then saving for a home loan may be the suitable new year’s resolution.
An idea to help save money for a home loan is to set up a budget and strictly stick to it. There are tons of software available for purchase, but you don’t need to rely on software to do it. You can easily set up a spreadsheet to track your spending or use the old method of sorting your budget funds into labelled envelopes.
There is a simple formula to work out how much you need to save a week to reach a savings goal. Check the formula below and the example to assist with understanding it.
Formula: S / W = A
S = Saving Goal
W = Weeks to Save
A = Answer
Example: If you wanted to have $10,000 this year you would put $10,000 in a calculator and then divide it by 52 weeks to get your answer. The answer is that $192.31 needs to be put away each week for a year to save $10,000.
Formula: 10,000 / 52 = 192.31
3. Home Loan Review
One New Year’s resolution that is straightforward is to get your home loan reviewed to see if your current mortgage is still one that best suits your needs. You may be missing out on important features you previously didn’t want such as an offset account or even paying a much higher interest rate. This is why it is important to get your home loan reviewed.
You can get your home loan reviewed complimentary with me at Read Finance. Giving you professional advice on how your current loan compares to others in the current market. Providing you with the ability to change using our service if it’s in your best interest and you are interested.
Some people don’t realise the amount of savings they could have if they refinance to a lower rate. Take a look at this table which shows the estimated monthly saving you could get on a lower interest rate.
Estimated Monthly Savings With Lower Interest Rate
| -0.5% | -0.75% | -1% | |
| $225,000 | $67 | $101 | $133 |
| $400,000 | $121 | $180 | $238 |
| $700,000 | $211 | $314 | $416 |
| $1,000,000 | $302 | $449 | $594 |
| $1,300,000 | $392 | $583 | $772 |
Refinancing can also provide you other benefits that you should talk about such as debt consolidation, funds to renovate, or funds to invest. Eliminating your debt alone could be its very own New Year’s resolution.
4. Extra Repayments
Making extra repayments on your home loan to reduce the principal will not only reduce the amount you owe but also the amount of interest that you pay over the lifetime of the loan. Paying an extra $200 for the lifetime of a $300,000 loan at a 5% fixed interest rate for 30 years would save you around $69,000 in interest while paying it off just over 6 years earlier.
An alternative option is to have an offset account that you place extra money into to reduce the amount of interest you pay.
Some home loans that are on a fixed rate won’t allow you to make extra repayments, or they’ll limit the amount. Paying extra on top of these could lead to extra fee’s being charged.
5. Renovating
If you plan on renovating your home and don’t have the funds saved up, you could consider refinancing your home loan if you have enough equity in the property. Using those funds to pay for the renovation.
If you are lucky after the renovation, your home loan’s estimated value will increase after you have completed the renovations. A positive for if you plan on selling or renting the home out after you are done.
Conclusion
These are five news years resolutions you should really think about when it comes to a home loan in Australia. The value you get out of following one of them could be life-changing so make sure you do your research and contact us to help you achieve your goals.
