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Can you make extra home loan repayment?

Making extra repayments on to your home loans can be a smart financial strategy. The extra cash contributed into your home can speed up your loan’s life cycle, with the added benefit of saving money in the long run; however, care must be considered to ensure the extra repayment are planned, and the right type of loan allows for extra repayment.

Every dollar reduced from the loan principal balances, and it also reduces the interest paid for the life of the loan.

For example: Loan amount $500,000 Interest Rate: 3.88% Repayment: $2,353 per month Loan term: 30 Years. Total Cost of Loan $846,940 Total Interest Payable: $346,940

If we increase repayment amount extra $200 per month, it brings the total cost of loan down to $793,357. It saves around $53,578.

Most borrowers will have their income increased over the years of their careers. Having the option to make extra repayment toward the home loan as the borrower cash flow increase, it allows the borrowers to move toward having financial freedom much quicker. It is important to consider the type of loan that will best suit your situation and will enable you to make any extra repayment in the future.

Compare between variable and fixed loan, almost every variable product allows the borrower contribute extra repayment toward the loan. Despite, the fixed rate loan still allows the borrower to make extra repayments but usually comes with a limitation.

It is advisable to ensure that extra repayments are built into your home loan structure if you are planning to pay more than the monthly minimum to ensure that you don’t get tripped up on the break fees.

It is the best way to going through your plans with the finance broker to make sure that all of your future goals regarding your loan are achievable under the product you end up taking.

Good brokers always ask the questions to find out the client specific purpose for the loan and their needs are in regards to the loan.

Choosing a home loan that allows you to make extra repayments should be a decision made with hour other liabilities in mind. For example, if one of your other debts is incurring higher interest (such as credit card debt), it makes more financial sense to pay that off first. You may also consider to pay off other debt (if any) to improve your cash flow.

These are important considerations as choosing a variable rate home loan may cost you more if you don’t follow through with making extra repayments due to more pressing financial liabilities.

At the end of the day, it is the structure of the loan that is important to consider not just the interest rate because a good loan structure allows you to move faster toward your financial goal.

Come to speak to Kevin Poh on 0415 820 016 to find a loan that matches your current need and your future plans.

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