Can you make extra home loan repayments?
Making extra repayments on your mortgage can be a smart way to pay down your home loan quickly with the added benefit of saving interest in the long run. However, care must be taken to ensure that extra repayments are planned properly, and the right type of loan taken out to allow for extra repayments.
Every reduction in a loan’s principal balance reduces the interest paid for the life of the loan, meaning that extra repayments aren’t just a ‘pat yourself on the back’ moment.
Most borrowers will, over the course of their careers, find themselves with higher earning potential as the years roll by. Having the option to pay more off your home loan as your cash flow increases offers a firmer grip on financial freedom, so it is important to consider what type of loan will suit you best if you intend to make extra repayments in the future, as not all loans offer this facility.
Generally, every basic variable or variable-rate product will allow borrower to make extra repayments. You also be able to make extra repayments on a fixed-term loan, but fixed rate usually comes with some limit restriction that you can pay per year.
If you are planning to pay more than your monthly minimum repayment, It is advisable to ensure that extra repayments are built into your home loan structure to ensure that you don’t get tripped up on break fees.
We always suggest going through your future plans with your finance broker to make sure that all of your loan is structuring in the way that help you achieve your future goals faster.
Choosing a home loan that will allow you to make extra repayments should be a decision made with your other liabilities in mind. For example, if one of your other debts is incurring higher interest, it makes more financial sense to pay that off sooner. You may also want to wipe off a separate debt completely to improve your cash flow.
These are important considerations, as choosing a variable rate home loan may end up costing you more if you don’t follow through with making extra repayments due to more pressing financial liabilities.
At the end of the day, it’s the structure of the loan that is important to consider. You need to be able to facilitate your financial goals.
Whether your plan is buying your first home, paying down your current mortgage, or buying an investment property. Please talk to Kevin Poh on 0415820016. He may be able to help you to structure a loan that will help you in achieving your goal faster.
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