The purchase of a house is the largest financial commitment that most people make in their lifetime. The loan repayments can be very difficult at this time. There are ways to save on your mortgage. Even small changes can reduce your interest rate and have a big impact on the long term. Imagine the amount you could save on your mortgage.
How to get the best deal on your mortgage
1. Keep your interest rate low
Your home loan has two parts: the principal and the interest. The principal is your borrowed loan amount, and the interest your lender charges is your loan amount. The majority of home loan repayments are made using P&I (principal and interest), meaning that the lower the interest rate, the smaller the payment. If you borrow $4000.00 for 30 years at 4% interest, your monthly payment will be $1909.66. However, if interest rates are reduced to 3%, it will only be $1686.42. The difference is $223.24 per month or $2678.88 annually. Check out the different lenders to find out more about interest rates, or speak with your broker.
2. Instead of monthly payments, make weekly or fortnightly ones
Switching your repayments to weekly or monthly is a simple way to reduce your mortgage. In fact, daily interest is added to the principle of your loan. When you pay more frequently, however, the amount on which the lender calculates the interest each day is lower. This means that you will gradually pay less interest.
3. Extra repayments
The interest rate on the remaining loan decreases as you make regular repayments. This is because the principal has been gradually paid off. Even if you pay a little extra for your loan each cycle, you can save a lot.
4. Mortgage offset accounts
Offset accounts can be savings or transaction accounts linked to a home loan or investment loan. Mortgage offset accounts are linked to either a variable or fixed-rate loan. An offset account is a great way to reduce the interest rate on your home loan and pay off your mortgage sooner.
Offset accounts are calculated by subtracting your savings from the balance on your home loan. As an example, if your home loan balance is $180,000, but you have $20,000 in savings, then offset accounts are the right choice. If you decide to cancel 100% of your savings, the $20,000 will be deducted from your mortgage, leaving a balance of $160,000.
You can choose to have an offset account that is only 30%. In the second scenario, your interest is payable on $174,000 of the loan after subtracting $6000 from the account offset.
5. Divide your loan into fixed and variable
You can fix part of your loan to a fixed term and keep the remainder variable. This will give you more flexibility.
Budgeting is easier with a fixed-rate loan because you know exactly what your repayments will be for the entire fixed term.
6. Regularly review your home loan
It is important to do this when your financial situation changes or the loan market changes. You may find that a new lender offers a lower rate or better terms. It is not always possible to switch loans, but it can be done easily if you use a broker.
There are always ways to save money on your mortgage, whether you’re a saver or spender. You can save hundreds of dollars by being mortgage-savvy.