When you consider that $50 a week extra into your mortgage can save you $59,850 in interest (based on a $500,000 home loan and interest rate of 4%) it makes sense to setup a system whereby your contributing extra to your home loan without thinking about it.

The system I use:
I have a home loan with an offset account that my regular income goes into. The day after I receive my regular monthly income, I have a certain amount that automatically goes across to the home loan account – out of sight out of mind so to speak.

The minimum monthly mortgage repayment comes out at a different time during the month. But I’ve learnt that by getting the extra amount taken out as soon as I get paid, the remaining amount in my account is there for me to live off for the rest of the month.

It is important to ensure you know what your monthly spending is and you have enough to live off. There is no point moving a large sum of money over to your home loan and then having to move it back again because you weren’t realistic about what how much you spend. Plus you will only feel deflated and like you’re not making progress.

The greatest benefit I’ve found about this system is I don’t have to think about it. It happens automatically, yet it can save you thousands over the long run.

To setup the your automatic transfer simply:

  • Login into your internet banking and go to the account you receive your wages in
  • Go to the transfer sections and select that account
  • If you scroll down there should be a section that allows you to make regular transfers
  • Select this regular transfer option (usually towards the bottom of the page), and match the payment to be made as weekly, fortnightly or monthly depending on how often you get paid
  • Set the regular date the day after you get paid (best to allow a day for timing purposes)
Again it’s important to make it realistic and not to feel defeated and abandon the system if you have had to redraw back from your home loan occasionally. The fact that it happens every pay cycle means there is a good chance you will stick to it, rather than relying on your will power to transfer savings regularly.  Give the system at least 12 months, before looking back at your progress.

In summary

* Setup a regular transfer from your everyday account to your home loan
* Ensure it is setup for the day after your paid and matches the frequency that your paid
* Make the regular amount realistic (10% of your income might be a good place to start)
* Review your progress after 12 months

Current leading interest rates

Leading variable rate 3.79%
1 year fixed rate 3.69%
2 year fixed rate 3.69%
3 year fixed rate 3.79%
5 year fixed rate 4.19%

If you have any finance questions you would like to discuss, feel free to reach me on 0434 514 533

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