WHERE ARE INTEREST RATES HEADING?

With the news on interest rate pointing to a rate rise in the coming months it is now time to consider your current rate and how it compares with the best. We can do a quick analysis for you free of charge.

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Combine all your loans together.

 

Make the most of rate falls
If monthly repayments drop because interest rates have fallen, try to maintain the old repayment levels. This means you will pay off more of the principal with each repayment, reduce the term of your loan and the total amount of interest paid.

Make your surplus cash work harder
Use cash savings to help pay off your loan quicker. Remember the old saying 'a dollar saved is a dollar earned'? If you have a home loan at 7 per cent, every extra dollar you pay off the principal is another dollar you are not paying 7 per cent on each year. If you instead put that extra dollar into a savings account you are only going to earn 2 or 3, perhaps 5 per cent at the most. Therefore putting savings into your loan earns you twice as much as a savings account.

Save interest with offset accounts
Offset accounts not only save you home loan interest, they help beat the taxman as well. Savings in offset accounts are subtracted from the outstanding loan amount each month so interest is charged only the net amount. Interest paid in cash to your savings account is taxable, but the same interest used to offset home loan interest is not – a tax effective way to reduce you home loan. However, to get the most from an offset account, look for accounts which offers a 'full offset', ie. paying interest at the same rate charged on your home loan. Redraw facilities and line-of-credit loans make use of your savings in much the same way.
 Use your home equity to borrow
The more you pay off your home loan, the more of the property you own or the more 'equity' in the property you build up. With a more flexible planning system these days, it is possible to borrow against this equity for further investment; a second property, shares etc. The advantage of borrowing against this equity rather than taking out a personal, investment or business loan is that the interest rate will invariably be lower – the better the asset you put up as collateral, the better the terms a lender will offer. Nothing beats bricks and mortar security (in this case, your home).