As a tradie, you work hard for your money. Whether you're a sparky, plumber, or chippy, chances are you've put in the yards to buy your own place. But here's something that might interest you – making extra repayments on your home loan can save you a massive amount of money over the life of your mortgage.
Let's talk about how you can use some smart extra repayment strategies to get ahead on your home loan and keep more cash in your pocket long-term.
Why Extra Repayments Make Such a Difference
When you're applying for a home loan, most lenders calculate your minimum repayments based on paying off the loan amount over 25-30 years. But here's the thing – even small extra payments can make a huge impact on both the time it takes to pay off your mortgage and the total interest you'll pay.
For example, if you've got a $500,000 home loan with a variable interest rate of 6%, your minimum monthly repayment would be around $3,000. But if you can manage to pay an extra $200 per month, you could potentially save over $70,000 in interest and pay off your loan about 4 years earlier.
That's money you could put towards your next investment property, upgrading your work ute, or planning for retirement.
Smart Extra Repayment Strategies for Tradies
1. Use Your Offset Account
An offset account is one of the most powerful tools in your home loan toolkit. Any money sitting in this account reduces the loan amount that interest is calculated on. So if you've got $20,000 in your offset account against a $400,000 home loan, you only pay interest on $380,000.
As a tradie, you might have irregular income from different jobs. Pop that extra cash into your offset account rather than a regular savings account. You'll save on interest without losing access to your money when you need it for tools, materials, or between jobs.
2. Make Fortnightly Instead of Monthly Payments
This is a sneaky but effective strategy. Instead of making one monthly payment, split it in half and pay fortnightly. Because there are 52 weeks in a year, you'll end up making 26 fortnightly payments, which equals 13 monthly payments instead of 12.
This extra payment each year can knock years off your mortgage without you really feeling the pinch.
3. Round Up Your Repayments
If your minimum repayment is $2,847, consider rounding it up to $3,000. It's only an extra $153 per month, but over the life of your loan, this small change can save you tens of thousands in interest.
4. Put Windfalls to Work
When you land that big commercial job or get a decent tax return, resist the urge to splurge on a new toolset (well, maybe just a little splurge). Consider putting a chunk of any windfall money towards your home loan. Your future self will thank you.
Things to Consider Before Making Extra Repayments
Check Your Interest Rate Type
If you've got a fixed interest rate home loan, make sure you understand the terms around extra repayments. Some fixed rate loans limit how much extra you can pay without penalties. Variable home loan rates typically offer more flexibility.
Build Your Emergency Fund First
As a tradie, your income might fluctuate with work availability, weather, or economic conditions. Before aggressively paying down your mortgage, make sure you've got a solid emergency fund covering 3-6 months of expenses.
Consider Your Other Debts
If you're carrying credit card debt or a personal loan with higher interest rates than your home loan interest rate, tackle those first. It makes more financial sense to pay off the higher-interest debt before making extra mortgage repayments.
Getting the Right Home Loan Structure
If you're buying a home or looking to refinance, it's worth talking to a Home Finance & Mortgage Broker about structuring your loan to maximise your repayment strategy options. Mortgage Brokers can access Home Loan options from banks and lenders across Australia, helping you find features like:
• Offset accounts
• Redraw facilities
• No restrictions on extra repayments
• Interest rate discounts for larger loan amounts
When you're going through the application process, your broker will assess your financial situation, including your borrowing capacity based on your income and expenses. They'll also help you understand factors like lenders mortgage insurance (LMI) if your loan to value ratio (LVR) is above 80%, and how stamp duty affects your overall property purchase.
The Property Market and Your Strategy
The property market moves in cycles, and Home Loan Rates change over time. Having a flexible repayment strategy means you can adjust as conditions change. When rates are low, you might focus more on extra repayments. When rates rise, you might ease back and use your offset account as a buffer.
Getting Started
If you're ready to get pre-approved for a home loan or want to review your current mortgage structure, the Home Loan pre-approval process has become much more streamlined. Most lenders now offer a streamlined application process that can assess your Home Loan application quickly, often just requiring recent bank statements and income documentation.
Calculating home loan repayments and understanding how extra payments will impact your loan is something a good mortgage broker can help you work through. They can show you exactly how different strategies will affect your specific situation.
Remember, every tradie's financial situation is different. What works for a subcontractor might not suit someone running their own business with multiple employees. The key is finding a strategy that fits your income pattern and lifestyle.
Call one of our team or book an appointment at a time that works for you. We specialise in helping tradies access the right home loan structure and can show you exactly how much you could save with the right extra repayment strategy.
