How to save on your mortgage
Keen to pay down your home loan quickly? Here are 5 things you can start doing right away!
1. Secure the best rate you can
Is your lender giving you the best deal they can? How do you know?
The home loan market is fiercely competitive and if you established your mortgage a few years ago, there’s a good chance your current lender is offering a better deal to new clients and hasn’t explicitly extended the same offer to you.
It doesn’t hurt to ask the question – even a small discount is worth it!
We’ve just helped one client negotiate a further discount on their existing $530K home loan, potentially saving them $2,120 p/a in interest. These clients have not refinanced away from their existing lender or restructured anything.
If your mortgage professional asks the right questions of the right people, you might just end up saving some interest.
Alternatively if things have changed a lot since you initially established your loan, you might be better off reviewing your entire home loan structure to ensure the features of your loan are ones you actually still need.
- Take advantage of loan features available to you
For some clients, a basic loan with the lowest possible interest rate is the best option whilst others are better off with a professional package.
Using an offset account in conjunction with a credit card can be a great way to reduce your interest costs and your net debt. (Remember you need to be paying off the credit card bill in full each month). However, if you don’t have any surplus funds to build up into your offset, you could be paying for a home loan feature you don’t really benefit from.
Not sure if an offset structure would suit you? You can read more about them here
- Pay as much as you can into your home loan (or offset account)
When interest rates fall, the minimum monthly repayment amount on variable rate loans also fall. This is great news because it means you pay less interest!
But what happens if you keep your repayments the same i.e. you continue to make the same repayment as you were before the rate drop? You will get ahead on your home loan!
In fact, if you can manage to pay even more than that, do it! The more you pay off in the early years, the faster you will reduce the principle loan amount and more interest you will save over the long term.
Using tax refunds and other windfalls (if you’re lucky!) to pay down your home loan is also a good idea.
- Pay as frequently as you can
Interest is calculated on the net debt you owe to the lender. This means any time you make a repayment that reduces the principal loan amount (even if it’s by a tiny amount), you are effectively reducing your interest costs.
So, if you’re serious about paying your loan off faster and not paying any more interest than you need to, think about making your Principle and Interest repayments fortnightly.
- Commit to the end result
Paying off your home loan is just like any other goal. If you don’t make the decision to do it and consciously work towards it, it’s not magically going to happen by itself.
You might want to set up a recurring payment each month to make additional repayments to your loan. That way, it will happen automatically without you even realising.
Daniel O’Reilly
Mortgage Professional
MO’R MORTGAGE OPTIONS
P: 02 6286 6501
E: [email protected]
www.mmo.com.au
