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1. Make changes to your loan repayments
Reduce your debt and boost your equity by restructuring your loan. The simplest way to do this is to fast track payments by switching to fortnightly repayments instead of monthly repayments (which is often the default payment method). Most people don’t realise you can change this.
For example, if you had a $300,000 loan at 5.5% over 30 years, your monthly repayments would be $1703.37, compared to fortnightly repayments of $851.68. Over the lifetime of your loan, you would save $62,255.32 in interest! Additionally, your loan term would be reduced by over 5 years.
2. Interest-only loans
An interest-only loan with offset account can be an effective strategy if you have the discipline to make regular additional payments into the offset account. This account effectively reduces the amount of interest payable on the loan.
For example, if you had a $300,000 loan at 5.5% over 30 years and you had $5000 in the offset account and you started the offset account at year 5, you would pocket approximately $14,251 in interest and would lower the term by 8 months.
3. Make extra repayments
Making extra repayments can help you free yourself from debt quickly. The repayments don’t have to be huge, the important thing is that you are able to make these repayments regularly, i.e. monthly or fortnightly.
For example, if you had a $300,000 loan at 5.5% over 30 years and you made additional monthly repayments of $250 starting at the 5th year of your loan, you would save $61,533.84 in interest – that’s pretty good! Not only that, but you would shorten the term of the loan by nearly 6 years!
In order to see the benefits from these strategies, it’s important that you have strong financial discipline when making payments and resisting making withdrawals from the offset account. Leveraging these loan features will mean significant interest savings, so why not give it a go?!