When you're serving or have served in the Australian Defence Force, buying a home represents more than just a financial investment – it's about establishing roots and security for your family. However, once you've navigated the application process and secured your home loan, the real work begins: paying it off efficiently.
As ADF members, you have access to unique benefits and Home Loan options from banks and lenders across Australia. The key is knowing how to structure your repayments to make the most of these advantages while reducing the overall cost of your loan.
Understanding Your Home Loan Structure
Before diving into specific repayment strategies, it's important to understand the fundamentals of your home loan. Your loan amount, interest rate, and loan term all work together to determine your repayments. Whether you've chosen a variable interest rate or fixed interest rate home loan, each option offers different opportunities for repayment optimisation.
The property market and your financial situation will influence which strategy works for you. Some ADF members prefer the certainty of fixed interest rate loans, while others take advantage of variable home loan rates when they drop.
1. Make Extra Repayments When Possible
One of the most effective ways to reduce your loan term is making additional repayments when your financial situation allows. Even an extra $50-100 per fortnight can save thousands in interest over the life of your loan.
For ADF members who receive deployment allowances or other additional payments, consider directing these funds straight to your home loan. This strategy works particularly well with variable interest rates, where extra payments typically go directly towards reducing the principal.
2. Utilise an Offset Account
An offset account can be a powerful tool for reducing your home loan interest. Every dollar in your offset account reduces the loan amount on which you pay interest. For example, if you have a $400,000 loan and $20,000 in your offset account, you only pay interest on $380,000.
This strategy works well for ADF members who may need to maintain higher cash reserves due to potential postings or deployments.
3. Consider Fortnightly Repayments
Switching from monthly to fortnightly repayments can reduce your loan term significantly. Because there are 26 fortnights in a year (equivalent to 13 monthly payments), you're essentially making one extra monthly payment annually.
This approach aligns well with ADF pay cycles and can reduce a 30-year loan by several years without significantly impacting your budget.
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Book a chat with a Finance & Mortgage Brokers at Defence Loans today.
4. Take Advantage of Interest Rate Discounts
As an ADF member, you may be eligible for interest rate discounts through certain lenders. These discounts might seem small, but even a 0.1% reduction can save thousands over the loan term.
When calculating home loan repayments, factor in any available discounts. If you haven't explored these options, it might be worth reviewing your current arrangement.
5. Review Your Loan to Value Ratio (LVR)
Your LVR affects both your interest rate and whether you need to pay lenders mortgage insurance (LMI). As you pay down your loan and potentially benefit from property value increases, your LVR improves.
ADF members who initially borrowed with a high LVR might find they can refinance to access lower rates or remove LMI premiums, redirecting those savings to principal repayments.
6. Leverage Home Equity Strategically
As you build home equity, you might consider using it strategically. Some ADF members use equity for expanding their property portfolio or other investments that can generate additional income to accelerate loan repayments.
However, this strategy requires careful consideration of your borrowing capacity and risk tolerance.
7. Maximise Your Tax Benefits
If you're considering buying your first investment property, understanding the tax implications can help optimise your overall financial position. Interest on investment loans is typically tax-deductible, which might influence how you structure your repayments across multiple properties.
8. Time Your Fixed Rate Decisions
For those with fixed interest rate home loans approaching expiry, planning your next move is crucial. Monitor market conditions and consider your options well before your fixed rate expiry date.
Sometimes, switching between fixed and variable rates or refinancing can provide opportunities to restructure your repayments more favourably.
9. Regular Loan Health Checks
The lending landscape changes constantly, and what was the right loan structure when you first applied might not be optimal now. Regular loan health checks can identify opportunities to improve your repayment strategy.
This might involve refinancing, restructuring, or accessing new Home Loan options that weren't available when you initially applied for a home loan.
10. Plan for Life Changes
ADF life often involves postings, deployments, and career changes. Build flexibility into your repayment strategy to accommodate these changes. This might mean maintaining higher offset account balances or choosing loan features that allow payment holidays during difficult periods.
Consider how potential moves might affect your financial situation and whether you'll need to sell, rent out your property, or manage it from a distance.
Implementing these repayment strategies requires understanding your specific circumstances and the Home Loan options available to you. The application process for refinancing or restructuring loans has become more streamlined, but having expert guidance ensures you make decisions that align with your long-term goals.
Remember, small changes to your repayment strategy can have significant long-term impacts. Whether you're looking to get pre-approved for your next property, considering home loan refinancing, or simply want to optimise your current arrangements, professional advice tailored to ADF members can make all the difference.
Call one of our team or book an appointment at a time that works for you to discuss which repayment strategies align with your financial goals and circumstances.
