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Savings tips for 2021: how to make your home loan work for you

Following a difficult year, 2021 is all about finding ways to save on your home loan. In this article we’ll point out some saving tips to help existing borrowers and first home buyers.

Get a lower interest rate

On a 25 year $400,000 home loan with a 3% interest rate, you’d pay almost $170,000 in interest. If your interest rate was 2.5%, you’d spend just under $140,000 in interest for the same loan. .

This just goes to show how much interest homeowners can pay over the life of their home loan. Even a slightly lower interest rate can save you thousands of dollars. So, finding a competitive interest rate is something to take seriously.

Interest rates are at all time lows right now and they’re on track to stay this way for the next three years, according to the RBA. So, make sure you are taking advantage of these low rates. Here’s how you can increase your chances of getting a low interest rate:

Ask your lender for a lower rate

Sometimes it’s as simple as calling up your lender and making a case for why you deserve a lower interest rate. If they are offering new customers a lower rate than you’re receiving, it’s likely that they’ll reduce your rate if you ask.

Tips for negotiating a lower interest rate:

  • Play the loyalty card: just being a long-term customer of a bank or lender can sometimes be enough to guarantee you a better rate.
  • Do your research: show them that you know there are better rates being offered by them or another lender.
  • Don’t be afraid to leave: in a competitive market, lenders won’t be too happy to lose customers, so they may give you what you want if it means you’ll stay with them.
  • Prove yourself: your lender won’t want to reduce your rate if you have a history of missing repayments and poor spending habits. Spend a few months polishing up your finances before you refinance or ask for a lower rate.

If you aren’t up for negotiating with your bank, a Home Loan Specialist can do this on your behalf.

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Refinance: Switch to a better rate

Refinancing is probably less scary than you’d think, and there’s a strong chance that there are savings waiting for you on the other side. If you think about it, refinancing is just switching to a new home loan that better suits your needs.

A home loan is a long term debt, and naturally the home loan you got 5 years ago probably doesn’t work for you anymore. Typically, if you haven’t refinanced in 18 months, you’re probably spending too much on interest.

Why would I want to refinance my home loan?

Everyone’s circumstances are different, but here are some reasons to consider refinancing:

  • You know you can find a better deal as your home loan is outdated
  • You are struggling to make repayments
  • You are earning more than you were the last time you refinanced and you’d like to pay off your mortgage sooner
  • You want to tap into your equity for an upcoming renovation or investment
  • Changing lifestyle (e.g. marriage, relationship breakdown, growing family)
  • You want to switch to a fixed rate mortgage to get more stability in your loan
  • You want to switch to a variable rate mortgage to get more flexibility in your loan (e.g. to make extra repayments or add an offset account)
  • You’d like to consolidate your credit card, personal loan and/or car loan under your home loan to save on interest.

Read our guide to refinancing to learn more about the process, benefits and drawbacks of refinancing.

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Clean up your credit file

To increase your chances of getting a good home loan deal and low interest rate, you’ll have to make sure your credit score is healthy. Lenders assess your credit history closely when looking at home loan and refinancing applications to determine your risk as a borrower.

You can usually get a copy of your credit report for free once per year, so it’s a good idea to take a look at it when you’re thinking about refinancing or applying for a mortgage.

Here are some tips to help you improve your credit score:

  • Check your credit rating at least once a year to ensure there are no inaccuracies that could be negatively affecting your credit score.
  • Make your bills, mortgage, credit card and loan repayments on time.
  • To avoid missing repayments, set up a direct debit system for any repayments.
  • Look into debt consolidation if you have a home loan and unsecured debts, such as credit cards, a car or personal loan.
  • Try not to make too many credit enquiries (e.g. loan applications). Speak to a financial advisor or mortgage broker if you are unsure where to apply to.
  • Maintain financial stability through retaining a long-term job.

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Get an offset account or redraw facility to save on interest

Where possible, always try to find ways to save on home loan interest as it can really add up over time. One of the best ways to save, other than getting a lower interest rate, is to get an offset account or redraw facility.

Offset account

An offset account is a popular loan feature that acts like a savings account attached to your mortgage. You’ll want to keep plenty of money in this account, as any funds will offset how much you are charged in interest. You can easily access the money in your offset.

For example:

If you have a home loan balance of $300,000 with $30,000 in your offset account, you’ll only be charged interest on $270,000.

So, the more money in your offset account, the better. There are usually annual fees associated with an offset account, so it’s important to ensure that the savings will be worth it. Lenders suggest having at least $10,000 in the account monthly to have an impact on your home loan balance.

How much can you save with an offset account?

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Redraw facility

A redraw facility is very similar to an offset account in that the funds in your redraw facility reduce how much interest you are charged. However, the difference is that a redraw facility pools any extra home loan repayments you make, rather than acting as a ‘savings account’.

You can still access these funds, but it will be slightly more difficult and you can expect to incur a fee for doing so. Most borrowers with a redraw facility avoid touching the extra repayments, unless they’re withdrawing a large amount to fund a project or big purchase.

What are the differences between an offset account and a redraw facility?

Offset accountRedraw facility
Reduces interest charged, while acting as a savings accountPays off the principal loan balance while reducing interest charged
Funds in your offset can be accessed easily and quicklyYou can expect delays and withdrawal fees if you want to access money in your redraw facility
There is usually an annual feeThe fund pools your extra home loan repayments

Zero-fee home loans

Since there are more and more lenders and interest rates are at historic lows, lenders are finding new ways to stand out from the crowd. Increasingly, some lenders are offering zero-fee home loans. This means that you might not have to pay:

  • Loan application fees
  • Loan establishment fees
  • Monthly or annual maintenance fees
  • Fees for loan features, such as an offset account

See if you qualify for a no-fee or reduced fee home loan by speaking to a mortgage broker who can recommend some low fee options.

First home buyer schemes

If you’re gearing up to buy your first home in 2021, you may be eligible for a number of government-run schemes aimed at assisting first home buyers. These schemes can save you money and help get you closer to buying your dream home. However, most only apply to borrowers buying a property that they intend to live in (i.e. owner-occupied).

First Home Owner Grant

The First Home Owner Grant is a one-off grant provided by the government to eligible first home buyers. The details of it vary between states, so it’s best to check how it will apply to you. Typically, about $10,000 is granted to first time buyers purchasing or building a new home.

Transfer duty/stamp duty concessions

Several Australian states and territories offer stamp duty concessions or full exemptions to first time property buyers. Find out how stamp duty works in your state and whether you’ll be eligible for any concessions:

First Home Loan Deposit Scheme (FHLDS)

The First Home Loan Deposit Scheme helps first home buyers with low deposits (under 20%) purchase or build a new home without having to pay Lenders Mortgage Insurance (LMI). This means that if you have a deposit as low as 5%, the National Housing Finance and Investment Corporation (NHFIC) will guarantee to a participating lender the remaining 15% of the value of the property purchased.

First Home Super Saver Scheme

This scheme helps you save money for your first home deposit within your super fund. Superannuation is taxed at a lower rate than your income, so you can save faster due to this concessional tax treatment.

Got a home loan question? Just ask!

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: interest rate, home loan, refinance, lender, credit score, debt consolidation, fixed interest, variable interest, offset account, redraw facility, stamp duty, first home buyer, first home owners grant

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# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 35% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors. Lendi's board is majority independent and non-executive.
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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