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Mortgages & Loans,Property

What Do You Know About Your Home Loan?

2 Jul , 2015  

Nikhil (Nik) Sreedhar
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Nikhil (Nik) Sreedhar

Founder at ProAdviser
Nikhil's dream job is to be an exotic car salesman. His favourite colour is orange and it shows as he is the 23 year old entrepreneur behind ProAdviser. You should follow him, he gets lonely.
Nikhil (Nik) Sreedhar
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Few large investments offer such “customisable” opportunities as home ownership.  You may paint, decorate, remodel, and furnish it pretty much as you want.  A home loan can make it possible for you to fulfil one of your larger life dreams – owning your own home.

But your home loan isn’t just about home buying power.  Your home loan can provide additional services to help you meet some of the expected and unexpected changes that happen at different stages of your life.  It’s time to learn more about how your home loan can work for you.

A Summary of Your Home Loan Benefits

Your home loan can serve you in various ways whether you are a single homeowner, a couple, expanding your family, or downsizing.  Consider some of these possibilities:

  • As a either a single homeowner or a two-income couple with no children, you may be able to reduce the cost of or expedite repayment of your home loan.
  • An offset account is one way of reducing your repayment cost.  Every dollar placed into this type of account is offset against your mortgage balance.  A major benefit is the reduced amount of interest you pay over the course of your loan.
  • Another option is to make additional payments each month.  Perhaps you can make fortnightly payments instead of once a month.  This can really accelerate paying off your home loan but be aware that not all lending institutions accept accelerated payment plans.
  • While variable rate loans offer greater repayment flexibility, you may also be able to negotiate extra repayments on a fixed rate loan.  Discuss repayment options with your lending agency before you make any changes in your repayment arrangements.
  • Your home loan can be adaptive to your changing life needs whether you are expecting your first baby, your home needs remodelling because of growing family needs, or you want to adapt your home for aging-in-place purposes.
  • Welcoming your first baby home may also mean you temporarily become a reduced-income family.  Shifting from a variable to fixed rate loan that locks in an interest rate (for an agreed-upon period of time) may reduce your monthly payment and ease some of your financial burden.  A favourable fixed rate protects you against interest rate increases while it remains in effect.
  • A second option is to inquire about splitting your loan.  In this case, one part of the loan is set at a fixed rate; the other part is set at a variable rate.  The benefit of a loan split is that you maintain some loan payment flexibility while gaining a bit of security.
  • Yet another way of putting your existing loan to work is the Top Up loan (one that increases your present loan while eliminating the need to apply for a new loan).
  • The redraw option enables you to access/draw out of your repayment account extra monies you have placed in it.

 

Time to Evaluate Your Home Loan Equity

A prudent homeowner periodically evaluates his or her home loan and home equity standing.  Remember, home equity is determined by subtracting the balance of your home loan from your home’s current value.  Your home value (i.e., its equity) increases as your loan debt decreases.  Higher equity may enable you to modify your home, allow you to invest in additional property, or downsize with greater financial ease.

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