We can all be a bit lazy at times when it comes to managing our money. But when it comes to your home loan, that laziness could cost you big time. So it is important to check that your home loan and banking is set up properly, whether you’ve had your loan for one day or five years. It could shave years off your loan and save you money in the long run.
Simplify your banking and save
Many of us have banking across more than one bank or credit union. That could be costing you more in effort and money than you realise. Having your banking in one place makes it easier to set up your everyday banking, direct debits and use internet banking.
A banking package (like NAB Choice Package) gives you the chance to simplify your banking. With a NAB Choice package, you’ll pay one annual fee and receive a range of benefits including discount home lending interest rates, discounts on certain insurance products, and no annual credit card fees.
Is it time to also consider consolidating other debts to save on fees and potentially save on interest?
Consolidating debts into your mortgage can help you save on interest and fees, as the interest rate on home loans can be lower than personal loans or credit cards. However, it can also increase your loan term, so it’s a good idea to first consider if this is the best option for you.
Make your home loan features work for you
One of the first things we look at when choosing a loan is whether to choose a variable or fixed interest rate. How do you decide? Both have their pros and cons.
Think about what you want to achieve. Own your home sooner? Or keep a tight rein on your budget?
Variable-rate loans often offer more flexible features: additional repayments at no cost, redraw, repayment holidays and 100% offset arrangements. They are designed to let you pay off your loan sooner if you want to.
Fixed-rate home loans are usually for a set period of time - often one, three or five years.
The advantage of "fixing" your home loan means that you know exactly what you're repaying, making it easier to budget. Whereas with a variable-rate loan, your repayments can "vary" as rates change.
Australian Securities and Investments Commission has some useful information for customers interested in using an interest only repayment period as part of their loan term. Check out their MoneySmart guidance for some easy to follow infographics highlighting the pitfalls and benefits of this type of lending structure. You can also find examples of how much you may expect to pay for this type of loan structure.
Set up a direct debit for your repayments
Once you move in to your new home it can be easy to forget about the home loan and all of the paperwork. But it's worth taking a moment to double check that the home loan repayments are set-up correctly from the start.
Make sure your loan repayments are coming out of the correct account. The simplest way to make a home loan repayment is to set up a direct debit through an everyday banking account. You can also choose to make a direct payment from your salary straight into your loan or offset account, but check with your employer to ensure this is possible.
Alternatively, login to NAB Internet Banking to set up an automatic payment so you can save yourself time. Create a regular transfer by going to the Funds Transfer section, New Funds Transfer and nominate your transfer frequency. This will let you choose how often you want to make your repayments.
Organise fortnightly instead of monthly payments
Consider making fortnightly repayments on your mortgage. Paying fortnightly instead of monthly means you’ll be paying the equivalent of an extra month’s repayment each year, which can make a big difference over the lifetime of your loan. This is a neat trick, especially if you get paid fortnightly.
Start using a 100% offset account
Having your everyday banking account linked to your home loan for 100% offset is an easy way to reduce the interest you pay without making extra payments on your loan.
Offset is a feature that you can add to your variable rate home loan. It links an everyday banking or savings account to your loan, and uses your account balance (the money that you have in the bank) to offset against your loan balance (the amount that you owe). The more money you have in your linked everyday banking account, the less interest you pay on your home loan.
If you have an offset account or are thinking about one, check out Pay less interest on your home loan with 100% offset for some tips.
Use your credit card to maximise your cash flow
So how does this work? You keep your money in your offset account, and instead of using that money for everyday purchases, you use your credit card. This helps you save interest on your home loan. But, it’s important to do two things if you manage your finances this way.
Firstly, you must track your spending. Know how much you're racking up on your credit card. Only spend what you know you can afford. Just because you can see dollars in your offset account, doesn’t mean that this money is available for spending. It’s sitting there to pay off your credit card balance every month.
Secondly, being diligent in paying off your credit card, in full, every month before the due date is essential. Otherwise you will be charged significant interest.
Our credit cards have up to 44 or 55 days interest free. This means if you pay your full closing balance by the due date each month, you can avoid credit card interest and the money in your offset account means you pay less interest on your home loan.
View your credit card options.
Set up your redraw facility
A redraw facility allows you to access any additional repayments you have made to your home loan when you need them. It has two key advantages: it means you can make extra repayments, thereby saving on interest costs; and it provides flexible access to funds when they are most needed.
This redraw feature is available with all our variable rate home loans (excluding building loans and Defence Home Owners Loan). Access these funds easily through internet banking. Redraw is unavailable when you have a fixed rate, construction or Defence Home Owners loan. For fixed-rate home loans, redraw is only available at the end of the fixed rate period (ie. when the rate becomes variable).