- Posted 10 Apr
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We are always looking for ways to help our clients save money on their mortgage, particularly when they are looking to refinance or are first home buyers. It can be tricky to navigate the home loan industry and if you’re not careful, you can pick the wrong loan and end up paying thousands more in interest than you needed to. Here are 5 ways that you can save time and money on your mortgage and save thousands in interest payable:
5 Ways to Save Thousands on Your Mortgage
- Beware of introductory rate offers from lenders. Always read the fine print. Taking a loan out with a lender because they are offering you the lowest rate upfront is not a good idea if this offer is for a short period of time.Often, this scenario leads to a variable rate, which is more often higher than the lower fixed interest rates available. This is where using a mortgage broker can help in ensuring you are getting the best deal.Always read the fine print – a good deal may not turn out to be so good in the long term.
- Choose to make your repayments at a higher interest rate. For example, if your agreed interest rate is set at 6%, make repayments as if the interest rate were actually 8%. By doing this, you’ll pay off your loan quicker and if interest rates fluctuate, you won’t even notice.For example, if your mortgage was $450,000 over 25 years and your interest rate was set at 6%, your monthly repayments would be $2,899.36. If you increased your monthly payments by a further 2%, you’d be paying an extra $573.81 per month, which would significantly reduce the amount of overall interest paid (saving you in excess of $150,000) and would pay off your loan quicker.
- Make more frequent payments. Rather than choosing to pay your mortgage monthly, opt to pay it fortnightly. This will reduce the life of the loan and the amount of interest paid. How? Simply split your monthly amount into two and pay fortnightly.It doesn’t make a difference to your bottom line in terms of the amount you pay monthly, but it will make a huge difference to your loan in terms of interest paid and how long it takes to pay it back. By paying fortnightly, you are making 13 monthly payments because there are 26 fortnights in a year and only 12 months. By doing this, you could save $50,000+ in interest and at least 4 years off the term of your loan. Easy to do at no extra cost to you.
- Start making payments to the principal loan amount as soon as possible. You can do this by making regular lump sum payments, as anything over and above your regularly monthly repayment will affect the principal amount, which will also reduce the amount of interest you pay over the term of the loan.Use your tax return refund to make lump sum payments, any pay rises you receive, add the extra amount to your loan repayment. Do whatever you can to start attacking the principal early on and you will save thousands on interest.
- Consolidate all of your loans and credit cards into your mortgage. This protects you against any interest rate hikes – because if your mortgage interest rate goes up, so will your credit card and personal loan rates. These are always much higher than your mortgage, so it makes sense to finance them into your mortgage and only pay one, low interest rate on all of them.This will save money long term and you can use the repayments that you were making to these loans and credit cards to increase your repayments to your mortgage, again further reducing your overall interest and term of your loan.
By applying these simple strategies, you’ll save thousands over the term of your loan. If you need help with any of these strategies, talk to the team at Australian Credit and Finance. They can help you with refinancing and providing recommendations on the best home loan to suit your particular situation.