Saving heaps on your home loan

RBNZ cuts rates to 2.75%After the flurry of official cash rate movement in early/mid 2014, the RBNZ left the cash rate on hold for quite a while. But that all changed in June, July, September and December last year, as well as March this year! Our official cash rate is now just 2.25%.

A lower official cash generally translates to a lower home loan interest rate – but that doesn’t mean that you should leave your home loan on hold. It’s always a good time to compare your options and save money on your home loan!

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Here are three ways that you could potentially save serious money on your home loan right now.

Bargain for a better home loan rate

Currently on CANSTAR’s database the average floating home loan rate is 5.78% (this does not yet take account of any cuts in rates from the March RBNZ movement). Currently on CANSTAR’s database, though, there are floating home loan rates as low as 5.65%.  Here’s the difference that could make on a $300,000 home loan over 25 years:

Loan $ $300,000 $300,000
Term of loan 25 years 25 years
Interest rate 5.78% 5.65%
Monthly repayment $1,893 $1,869
Total Repayment $567,829 $560,770
Total amount of interest paid $267,829 $260,770
Interest saving compared to original $7,059

Source: CANSTAR. Based on interest rates researched by CANSTAR, march 2016.

Bargain – but keep your repayment the same.

Getting a lower rate is fantastic – but you could really supercharge those savings by getting a lower rate AND keeping your monthly repayment at the same level. Here’s the difference that could make on a $300,000 home loan over 25 years:

Loan $ $300,000 $300,000
Term of loan 25 years 25 years
Interest rate 5.78% 5.65%
Monthly repayment $1,893 $1,893
Total Repayment $567,829 $552,548
Total amount of interest paid $267,829 $252,548
Interest saving compared to original $215,281

Source: CANSTAR. Based on interest rates researched by CANSTAR, March 2016

Pay your home loan fortnightly.

As well as getting a lower interest rate and keeping your repayments the same, why not pay fortnightly instead of monthly? This strategy works best if you divide your monthly repayment by two and pay it fortnightly (it’s a sneaky way of increasing your repayments without really noticing). As follows:

Loan $ $300,000 $300,000
Term of loan 25 years 25 years
Interest rate 5.78% 5.65%
Regular repayment $1,893 $946 per fortnight
Total Repayment $567,829 $509,190
Total amount of interest paid $267,829 $209,190
Interest saving compared to original $58,639

Source: CANSTAR. Based on interest rates researched by CANSTAR, March 2016

Best of all, by doing all three strategies you can not only save significant money on your loan, you can also free up your cashflow years earlier. So be smart about your home loan repayments – and reap serious rewards.

 

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