Paying your home loan quicker is good right? Well kind of, if you do it safely. It might seem like a good idea to lock in a shorter home loan term at a low interest rate but what about if interest rates go up. Will your bank be happy to extend the term again?
It is important to understand two fundamental points when it comes to managing a home loan smartly.
- Interest is calculated on the daily balance
- The paper term on the loan documents, describes the maximum not the minimum term
Why is this important? It sets the groundwork for how to keep control and still achieve a shorter term.
The impact of additional payments, even a small amount has a big impact on the term. As the interest costs reduce promptly. Every bank allows you to use floating home loan products to plan for and make additional repayments. A lot of banks also can allow additional repayments on a fixed portion of the home loan without penalty.
A revolving credit home loan or offset is a great way to do this and still have access to the past additional payments, should you need to re borrow some funds.
