I just responded this exact question on a forum – and while the answer is simple:
1 Get a good economic interest rate and reasonable fees (if any)
2 put as much money into the loan (or offset account) as soon as you can
3 and leave it there!!
It’s also really complex!
The poster writes:
“I was looking into buying a house and doing some research and I read that you can pay your loan off faster if you do not pick a principal+interest loan ? Is this true ? After doing more research I think found 2 companies that are giving lectures about how to save money on your home loan (Bec’s note here – theres no need to pay for this information, or attend a lecture – truly it isn’t that complex!)
What is the quickest way to pay off a home loan ?
What loan kind is best for someone earning great money – assuming the property is $650k and deposit saved is $80k”
My response is:
A principle and interest strategy vs an interest only strategy with an offset account comes down to your future plans for the property (and yourself).
Questions you need to consider are:
- Is this your forever home?
- Is this a future investment home?
- Is this a short term step to your dream home?
- How do you bank? Do you split your money up and operate multiple accounts?
- Do you want to access your extra repayments – and when?
At the end of the day, interest is calculated on your daily loan balance – so get as much money as you can, into the loan or offset account as quickly as you can and see the balance drive down & pay that thing off so you can go on to do whatever you like with your money. But where is best for you to put your money and should you grab a cheap fixed or intro rate – well thats what we will work out.
Its the easiest thing to sit down with your broker who will assess your loan, work out your future plans and the best way to pay your loan off – for you. Go on, all it takes is a phone call!