Beyoncé got to the top with bills, bills, bills – and you can get on top of yours by understanding them better.
Brushing up on your home loan statement can help you better understand your mortgage repayments, and how much of your hard earned coin is going toward interest payments versus actually paying off your loan. If your home loan is attached to an investment property, knowing how much interest you’ve paid – and how much you can claim come at end of financial year – may help give your tax return a healthy boost.
Ultimately, understanding how much money you’re putting into your loan – and how much you still have to pay – is key to financial planning success.
Here’s three parts of your statement you should understand before you head to the mailbox:
1. Keep on surviving.
Your mortgage repayments are the money you pay regularly to service your loan. This usually means paying down the money you first borrowed (the principal) plus any interest charged.
If your loan is structured as a principal and interest loan, part of your repayment will go toward paying off the interest instalment, while anything left over will go toward paying down your mortgage. If you have an interest-only loan, you will only pay the interest and your mortgage balance will stay the same.
Your minimum repayment – what you need to pay on a regular basis, often monthly – is usually worked out as a percentage of what’s left owing on your loan. Making more regular repayments may mean you pay the loan down quicker and so pay less interest over the lifetime of the loan.
Use the ME repayments calculator to work out what a few extra repayments could save you.
2. Jumping, jumping rates.
The interest paid on your loan will be based on variable interest rates or fixed interest rates.
Fixed interest rates mean the interest you pay on your mortgage is locked in with your bank and will stay the same (for a set period). Variable interest rates mean the amount of interest you pay on your loan will depend on what’s happening in the market.
People often lock in a fixed rate for consistency and to get the best interest rates, whereas variable rates shift up and down – meaning you may pay less in the long term. Loans with variable interest rates also let you make extra repayments , whenever you like, with no fees or penalties.
3. Becoming an independent woman (or man).
If you have a variable rate home loan, it can also be used as a savings account. Putting any spare cash into your home loan helps pay down the mortgage, meaning you will pay less interest for that period.
If you do need the extra coin for something else, you can simply make a redraw . It just needs to be more than $500 per withdrawal and it’ll be fee-free.
The writing’s on the wall.
Now you have the basics down, you can find your loan balance (1), where your mortgage repayments are going and how much interest you’re paying (7) and the amount you can redraw (2) – plus a bunch of other info – on your statement .
Want to change your home loan? Refinance with ME.
This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.