Own your home sooner

Are you aware that paying $100 extra per month saves $43,000 and almost four years off the life of an average $300,000 loan?

Far too many homeowners are missing out on opportunities to pay off their loans sooner, new research shows.

Which is bizarre, since the same research shows that ‘owning a home’ or ‘paying your home off sooner’ are the top priorities for 57 per cent of the respondents, while having children or getting married rated at 8 per cent and 5 per cent respectively.

The Westpac Home Ownership Report* also found that the majority (77 per cent) of people surveyed believe that ‘home ownership’ is only achieved when their home loan has been paid off in full, as opposed to when they first purchase a property and take out a loan.

Gai McGrath, General Manager of Retail Banking at Westpac, remarked that the research showed that Australians need advice to help them own their home sooner.

“Our research indicates that many features designed to help pay off loans quicker are not fully understood, meaning Australians are missing out on opportunities to pay off their home loan faster”, she said.

Small steps such as setting up a home loan with a 100 per cent offset account, accelerating the frequency of payments to fortnightly rather than monthly or making additional repayments, can reduce both the term of the loan and save thousands in the long-term, Ms McGrath suggested.

“For example, more than one in three (37 per cent) Australians with a home loan have an offset account”, she said.

“However, more than one in three (36 per cent) of those didn’t actually understand how an offset works so I doubt they are using it to their full potential.

“To help our customers Westpac has specially developed an offset calculator which allows Australians to work out how much time they can reduce on their home loan term and money they can save by using an offset account.”

According to (benchmarking firm) Comparator's Quarterly Market Diagnostics for the Home Loans Report representing ten of the nation’s largest home loan lenders, there is around $59 billion in offset balances.

"What is remarkable is if you were to use these figures as a base and then look at the average discounted interest rate across all Banks at 5.35 per cent, those Australians are making an estimated annual savings of $3 billion ($3,131,151,647) on their offset accounts," Ms McGrath observed.

She added that there seems to be a lot of confusion about the types of home loans available in the market.

“One in five (20 per cent) of those intending to buy in the next 12 months had no idea what type of loan structure they should take up when they go to buy and of those who already had a home loan, over one in five (22 per cent) didn’t even understand what a variable rate was”, said Ms McGrath.

While confusion exists, the general sentiment amongst Australians with a home loan is positive; with three quarters (76 per cent) stating they believe now is a good time to be paying above their minimum repayments.

* The survey researched the priorities of Australians who either have a home already or are planning to buy within the next twelve months.