09 Nov 2017

Gemmill - Budgeting for Home Loan Repayments

You may have decided you’re ready to purchase your dream home, or maybe you’ve just had your Home Loan Approved. In both cases, taking the time to sit down and commit to a budget will allow you to have control over your money.

A budget will give show you how much debt you can realistically take without getting stressed, and can identify and eliminate unnecessary spending which will enable you to have more money to work with, no doubt making your life a lot easier.

Can I afford a home loan?

Forming a budget means factoring in exactly how much money is coming in, prioritising bills and repayments and enlisting strategies to make your dollar go further.

Firstly, write down the amount of regular and consistent income, as well as your current and future financial commitments. This includes things like credit card and loan repayments as well as monthly commitments such as household utilities, groceries, and other living expenses.

Once you have factored in your regular commitments, consider what you would have left over to budget house repayments each month. Speak the finance professionals at CLS who can assist you with factoring everything into your budget. One of the calculators on the website may help. After you have written your budget, reassess that maximum repayment figure, and consider unexpected spending that can pop up each year. Don’t forget to factor in things like family holidays, annual maintenance on your home or car, and things like Council rates and vehicle registrations.

Maintaining house repayments

Maintaining good repayment history will be easier if you keep an eye on your budget each week or month. Having a short term as well as long term plan will help you stay on track budget wise, and allow you to factor in incidental costs along the way.

A standard 30 year term may only take you 20 years or less to repay, once you know how, and will not only put you in a much better financial position, but will also help to make you feel more secure. Ultimately, you can do this without putting yourself under financial pressure.

We recommend paying weekly or fortnightly, (especially depending on your pay cycle) rather than monthly on your home loan. This is because interest is calculated daily on your loan, so if you’re making payments more frequently, you’re decreasing your loan more often, which reduces the amount of interest you are charged.

Paying weekly or fortnightly can save you money, even if you’re not changing the actual amount of repayments made by the end of each month. Best of all, you can align payments with your pay days, making budgeting easier.

Making extra house repayments

Another trick for house repayments is to make extra repayments whenever you come into a windfall. This might be a work bonus, tax refund, or one-in-a-billion lottery ticket. Every bit helps! The more you pay into your home loan will reduce the loan balance and save the amount of interest charged to your loan. There may be limits to the amount of extra repayments you can make depending the type of home loan you have, just ask the experts at CLS.

This article was written by Central Lending Solutions (CLS), a Perth based finance broking business with over 20 years experience in the finance industry. We specialize in construction finance and but can assist our clients in all aspects of finance.