Rising interest rates and high living costs are driving Perth homeowners to find smarter ways to reduce their mortgage burden. One proven strategy is to make extra repayments, which directly reduce the principal and cut total interest costs significantly over time.
How Do Extra Repayments Work?
Your mortgage interest is calculated daily on the outstanding principal balance. When you make extra repayments, you reduce this balance faster than your minimum schedule demands. As a result, your daily interest charges shrink, lowering your total interest bill.
For example, a $500,000 loan at 6% interest over 30 years has minimum monthly repayments of about $2,998. Paying an extra $200 per month cuts approximately 4 years off the loan term and saves over $81,000 in interest.
Offset Accounts & Redraw Facilities
Many Perth lenders offer offset accounts and redraw facilities, which allow you to make extra repayments while keeping funds accessible if needed. For instance:
- Offset account: Extra money in the offset account directly reduces the principal for interest calculation but remains accessible like a transaction account.
- Redraw facility: Extra repayments reduce the loan balance, but you can withdraw the excess paid if your lender allows.
A Mortgage Broker Perth can help you compare lenders to ensure your loan has features that maximise the benefit of extra repayments without penalties or hidden fees.
Potential Fees & Restrictions to Watch For
Not all loans are equally flexible. Some fixed-rate loans limit or penalise extra repayments. Others restrict how often you can redraw funds. Always confirm:
- The maximum extra repayments allowed per year.
- If break costs apply for fixed-term extra repayments.
- Redraw conditions and minimum redraw amounts.
Long-Term Benefits of Extra Repayments
- Equity Growth: Faster repayments mean more equity sooner, which can help with refinancing or using equity for renovations or investments.
- Rate Increases Protection: Paying more now provides a buffer if rates rise unexpectedly.
- Improved Loan Terms: Some lenders may offer better rates or waive fees for borrowers who reduce their LVR (Loan to Value Ratio) faster.
Why Get Professional Advice?
A qualified Broker Company Perth can assess your current loan, compare it with market options, and negotiate features that suit your repayment goals. They can show realistic scenarios using loan repayment calculators, outline tax impacts if relevant, and help with paperwork for setting up offset or redraw arrangements.
Conclusion
Consistently paying even modest amounts above your minimum repayment can save Perth homeowners tens of thousands over the life of a mortgage. It also strengthens financial security and opens future opportunities for investment or upgrades.
Speak with a licensed mortgage Broker to tailor extra repayment strategies that match your financial situation and keep your home loan working to your advantage.
Comments are closed