This guest article is compiled by Mortgage Choice spokesperson, Kristy Sheppard in conjunction with Savings Guide.
There are shortcuts that can help borrowers stay ahead in their repayments, reduce their loan term and save on the overall interest owed on their home loan. It’s about taking control of household finances by managing your mortgage instead of letting it manage you.
Mortgage stress can be one of the biggest issues for any borrower. The common cause of mortgage stress can be from the rise in living costs or higher interest rates – though the most common is your increased spending after getting a mortgage.
The 2011 Recent First Homeowner Survey from Mortgage Choice shows us that 19% of respondents had taken on significant post-mortgage debt within the first couple of years. A further 45% of those people managed to rack up $20,000 of extra debt.
The repayment strategy of these borrowers is critical for reducing their mortgage. Have a look at the below simple, yet effective methods of saving money and repaying a mortgage sooner.
Contribute your change
If you can find a way to contribute a little bit extra each month to your home loan repayments, it can help greatly in the long run. An example would be a mortgage of $300,000 at an interest rate of 7% (over 30 years). If you were to pay an extra $54 per month, meaning your repayment went from $1996 to $2050 – your home loan would be repaid one year and nine months earlier (approximately) – saving you over $25,500 in interest.
Make a dent
As previously discussed on Savings Guide, making a lump sum repayment can really make a big difference to your overall position. Using the above scenario, if you were to contribute $500 three years into your loan, your overall loan term would reduce by an entire month and save you $2800 in the long run. Now imagine if you did this every year – it would make a massive difference.
Make the most of loan features
By using an offset account, borrowers are able to link their savings account with the home loan account – offsetting whatever amount of money is in the saving account against the interest accumulating on the mortgage.
An example of this is if a borrower had $5000 in their offset account, with a $300,000 home loan at 7% – the home loan term would reduce by nearly 1 year and the interest saved would be over $33,000. Just be careful of the fees that some lenders charge for you to have this style of setup.
Don’t settle for second best
Be sure to check if you actually need certain features on your home loan. Often we get enticed to buy a premium loan with all the bells and whistles, when really it is just costing us more money. Look at more basic offerings that have strong interest rates and the ability to repay quicker when desired. If your current loan is not right for you, considering refinancing. Just be sure to check the costs of doing so before hand, as sometimes this can be an expensive task.
Keep your eye open for bargains
As we say at Savings Guide, always bargain hunt. Regularly check your home loan against other lenders in the market. The mortgage market changes nearly daily, so definitely worth while investigating if you have had your loan for a few years now.