At Defence Bank we want to see our members stay on top of their household budgets.
Many Australians are coming off record low fixed home loan rates taken out during the height of the COVID pandemic in 2020. While a lot has changed since then including variable rates rising, there are ways you can stay on top of mortgage repayments and build for the future.
Your options when coming off a fixed rate.
Here are some ways you can reduce some of the stress around mortgage repayments and have confidence in where you are heading.
- If you are coming off a fixed loan shortly you can take out another fixed loan. This will ensure the certainty of a fixed repayment amount for a period of time, allowing you to budget.
- Alternatively, you can opt for a variable home loan. These loans are flexible and come with features like unlimited extra repayments and 100% offset accounts which can help reduce interest and the time it will take to repay the loan. However please note that with variable rate home loans your repayments may increase with movements in market conditions like RBA rate increases or if your lender increases rates.
- Select a more basic home loan type that doesn’t come with features such as an 100% offset account. You may find the interest rates is lower and the loan will come only with a free redraw facility and not an offset. Our popular Premier Low Rate Home Loan comes with free extra repayments plus free redraw.
- Finally, there is the option of a split loan, where part of your home loan is variable and the remainder is fixed. This will allow you to enjoy the best of both worlds. It can offer both the freedom of making extra repayments with the ability to redraw or use a 100% offset on the variable portion, along with some degree of certainty of repayment amount on the fixed portion.
Talk to us today to understand your options.
Some ways to get ahead on your home loan.
Your home loan could hold the key to managing rising rates. We explain how certain loan features can help you get ahead when rates are heading higher.
Consider an offset account for reducing interest costs.
An offset account allows you to keep spare cash in an account that offsets the interest payable. When interest is calculated, it is calculated on the balance of the loan less the funds held in offset, so any savings can lower the balance and interest calculated.
How does an offset account work?
An offset account is an everyday account linked to your home loan. It works just like a regular account. But its superpower is the potential to make big savings on loan interest.
When interest is calculated on your loan each month, the balance of the offset account is deducted from (or ‘offset against’) the value of your home loan.
For example, if your home loan balance is $400,000 and you have $20,000 in the linked offset account, loan interest is calculated on $380,000. That can mean generous savings on interest.
The benefits of offset don’t end there. Your loan repayments stay the same, but as the interest is reduced, more of each repayment goes towards paying off your loan balance. So you can be mortgage-free sooner and save plenty on interest along the way.
|The pluses.||A home loan offset is a great way to put savings to work to pay off your loan sooner. Plus your money is at-call so you can access it any time.|
|What to weigh up.||Home loan offset is usually only available with a variable rate home loan.|
Don’t forget about redraw.
Paying a bit more off your home loan each month can deliver valuable savings on interest and help you pay off your loan sooner. And thanks to redraw, those extra repayments are not locked away. You have the option to withdraw the cash if it’s needed in an emergency.
|The pluses.||Every extra dollar paid into your home loan comes straight off the balance, so next month’s interest charge is lower. Make a habit of paying a bit extra off your loan each month, and you not only turbo-charge the interest savings, your loan can be paid off ahead of schedule.|
|What to weigh up.||While some lenders charge a redraw fee. Defence Bank home loan redraw is fee-free. But by keeping redraws to a minimum, you will hold on to the gains you make paying down the loan.|
Which is better – redraw or offset?
Redraw and offset have plenty in common, and also some differences. Which is better depends on how you like to manage your money.
An offset account is usually ‘at call’, so your money is available any time via ATMs, EFTPOS, online banking, our award-winning Mobile App or over the counter withdrawals. But discipline can be required. Dipping into your offset account too often means you won’t maximise all those juicy interest savings.
By contrast, the process of requesting cash out via redraw can act as a deterrent to making regular withdrawals. You may find for instance, that you use redraw as a last resort. So your money keeps working harder for longer to save on interest.
Make a lump sum payment.
From birthday money to a tax refund, maybe even an end of year bonus from the boss – it’s surprising how often a lump sum comes our way.
Popping the cash into your home loan helps you make big strides paying off the balance. This scales back your interest costs and puts you on the fast-track to be mortgage-free sooner.
Keep repayments the same if the loan rate falls.
If you are able to maintain existing repayments when interest rates fall, this is a great way to get ahead. When rates fall but you keep payments the same, you pay off your loan sooner.
We also recognise that life happens. If your financial circumstances change, please don’t feel like you are alone. Contact us as soon as possible so we can come up with a plan together.
Financial hardship is actually more common than you think and you will be treated with care and compassion by our team. Talk to us about your changed financial circumstances so we can work together.
We will work with you to address your changed circumstances via a range of options. This will include looking at reduced repayments for a period of time, an interest only period with a postponement of repayments, or other options dependent on your individual circumstances.
Important note: This information is of a general nature and is not intended to be relied on by you as advice in any particular matter. You should contact us at Defence Bank to discuss how this information may apply to your circumstances.