Insider's guide to better home loan savings

Tip 1 – Beat budgeting blues

A budget is about knowing how much is coming in and going out – having easy access to the bigger picture. If you plan to make a substantial financial commitment, such as buying a house, a budget can help you work out the numbers related to your earnings, expenses, savings and borrowing power.

To get the most out of your budget, stick to it. Over time, you can trace your spending and saving habits and make suitable adjustments to get you closer to your desired deposit, pay off a debt or do some renovating. Need a solid start? Try AMP Bank’s budget planner calculator at amp.com.au/bankcalculators.

Tip 2 – A bigger deposit

If you are able to pay a deposit on the house of your dreams that equals at least 20% of the purchase price, you could be making a worthwhile saving, by not having to pay the lender’s mortgage insurance premium.

The bigger the deposit, the better for you – it means less time spent paying off your home loan.

Tip 3 – Pay fees upfront

Home loans come with all types of fees, such as legal fees, establishment fees and settlement fees, in addition to government stamp duty. To save you money on interest over the term of your home loan, it may help to pay all related fees upfront, rather than adding them on to the loan itself.

Tip 4 – Offset it

An offset account is a deposit account linked to your loan account. For example, if you have a home loan of $500,000 with a 100% offset account with a balance of $100,000, you effectively only pay home loan interest on $400,000. The more money you leave in your offset account, the more you can save on interest.

To take advantage of this, you can arrange to have your salary deposited directly into your offset account. Any money you have in your offset account reduces the amount of interest charged on your home loan.

Tip 5 – Go interest free

Credit cards with an interest free period give you interest free days on purchases. Take advantage of this for your day to day transactions. Once the interest free period ends, repay the balance owing on your credit card from your offset account. This means not paying any interest on credit card debt.

Tip 6 – A split in two

Hedge your bets with a split home loan, which can allow you the flexibility of a variable rate loan and the security of a fixed rate loan. The combination is your choice – it can be half fixed and half variable, or 70% variable and 30% fixed. It may help to reduce your exposure to interest rate increases.

Tip 7 – Fortnightly routine

Did you know that making fortnightly repayments on your home loan could mean that you can make one extra monthly repayment every year? The benefit lies in reducing the amount on which future interest is calculated, which in turn reduces the duration of your home loan.

For example, if you pay $3,000 a month in repayments, that is $36,000 per year. If you pay $1,500 a fortnight, that is repayments totalling $39,000 a year, because there are 26 fortnights a year. This means an extra $3,000 paid off from your home loan.

Tip 8 – Lump sums

If you are the recipient of a cash lump sum (tax return, cash gift or inheritance) and have a variable rate home loan, you may want to consider putting this directly into your home loan. Why? Because you will be reducing the amount you owe, the interest you have to pay and the time it takes to pay off the loan.

For an estimate of the positive impact a lump sum repayment can make to the life of your home loan, check out AMP Bank’s lump sum repayments calculator at amp.com.au/bankcalculators.

Tip 9 – Little bit extra

Paying a little extra can go a long way, especially when it comes to your home loan. Whenever you receive a pay increase or a bonus, it would be great if you are able to allocate a percentage of that to your home loan. It will cut down the time you spend paying it off.

The boost it will bring is worth the discipline you put into it. To get an estimate of how extra repayments can help you pay off your loan faster, visit AMP Bank’s extra repayments calculator at amp.com.au/bankcalculators.

Tip 10 – Time for reviews

Since the only constant in life is change itself, there’s a fair chance that your own personal and financial circumstances will change from time to time. Regularly reviewing your home loan is useful to ensure that it still meets your needs and that you are still getting the best deal in the market. 

Does your home loan suit your current circumstances? Contact us today to have your home loan reviewed.

What you need to know
Any advice given is general advice and does not take into account your needs and objectives or financial situation. You should consider the appropriateness of any such advice to your circumstances and read the relevant Terms and Conditions available at www.amp.com.au/bank before deciding to acquire or continue to hold an AMP Bank product. Credit provider and product issuer is AMP Bank Limited ABN 15 081 596 009, Australian credit licence 234517, AFSL 234517. No reader should act on the basis of this article without obtaining specific professional advice. Further details are available from your planner or AMP Financial Planning Pty Limited, telephone 1300 157 173.