Nila Sweeney

Q. Like all people, I want to own my home as quickly as possible. I originally borrowed $150,000 and still owe $110,000. I have a fixed interest rate of 7.15% until May 2008. Why don't I seem to be knocking off more of my loan? I have heard about 100% offset and all-in-one loans, but do you recommend this for someone on a small single income? What do you suggest is the best option to own my home sooner? Should I simply refinance (moving to a new lender) at a lower interest rate?

A. Offset or all-in-one accounts allow you to offset your savings, salary and other cash resources against your home loan principal and therefore you pay less interest on your loan. Making your monthly repayments in weekly or fortnightly instalments will also cut interest costs as your outstanding loan balance is reduced and as a result you pay less interest on that lower balance. Borrowers often pay a higher variable interest rate on such loans because offset and all-in-one accounts offer many features which ultimately result in higher administrative costs to the lender. If you don't have much surplus cash to offset against your home loan principal your offset or all-in-one account may cost you more money than it saves (because of the higher interest rate and/or charges). At the end of the day the main way to owning your home faster is to make extra repayments into your home loan over and above the minimum repayments required. Most fixed rate loans allow extra repayments, although in limited amounts. Check with your lender if you can repay extra and whether it will attract any fees. The more extra repayments you can make, the more your repayment will go towards the loan principal, rather than the interest. Refinancing is always a good idea if it saves you money. But you need to ask your existing lender what break costs or discharge costs you will face if you refinance with a new lender. You then need to balance the costs of breaking your existing mortgage against the financial benefits of moving to a new loan with a lower interest rate. Don't forget that if you're on a tight budget a fixed rate loan offers you more financial security

Related: Home Loan Calculator

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