A growing number of home owners around the country are desperate to learn how to reduce their monthly mortgage repayments.
Up to 40% of Australians fixed their interest rates but they were at record lows in 2020. But now many of these loans are expiring as the Reserve Bank of Australia continues to hike interest rates.
A tenth successive rise in March took the cash rate to 3.6%. That may translate to a standard variable rate as high as 7%, depending on the package.
For those who enjoyed those low fixed rates, the party is almost over.
With a $600,000 loan, monthly mortgage repayments could almost double to as much as $4000 by migrating on to a standard variable rate.
How to save money on your mortgage repayments
There are many courses of action that can be taken to significantly reduce the financial burden of rising interest rates and still enjoy the lifestyle to which you are accustomed.
The first and most significant of those is refinancing.
Refinance your loan
Refinancing is the first lever that should be considered by anyone looking to save money on their home.
Sadly, it’s a strategy that is far too under-utilised by Australian home owners.
Many think it’s too hard, not worth the effort or that it won’t save them much money but the reality is it could save you up to $1250 a month and $15,000 a year. That’s a tax-free saving!
But there is no time to waste.
It’s vitally important to refinance sooner rather than later to take maximum advantage of interest rate pressure as it heads upwards.
If you leave it too late, there is the possibility rising interest rates and falling house prices could impact your LVR (loan-to-value ratio) and hence your capacity to refinance.
That would then leave you with no option but to accept a significantly higher variable rate.
But even if you don’t or can’t refinance, there are other tools you can use to pay off your mortgage faster or temporarily reduce your repayments.
The sooner it’s paid off, the more money you will save.
Ask for an offset account
This is the gold standard when setting up a home loan.
An offset account allows you to leverage every dollar you earn against your home loan.
It works that way because it is a transaction account linked directly to your mortgage. When you use an offset account, you only pay interest on your home loan balance minus the offset account balance.
You can still use this account for your normal, every day transactions while enjoying the offset benefits.
Some offset accounts may come with ongoing fees or higher interest rates so it pays to do your sums.
Shop around for a better home loan deal
Lenders will usually work hard to keep your business, so don’t be afraid to ask your bank for a better deal.
Check the rates of rival lenders and that doesn’t just mean the big banks. Smaller lenders are also worth considering as well and sometimes offer very competitive rates.
If you find a better rate elsewhere, ask your lender to match it. If they refuse, consider the cost of staying versus the cost of moving.
While it is possible to go it alone, is highly recommended to go through this process with the support of a mortgage broker who can do the hard work for you and find the best deal for your needs.
Increase your repayments
It may sound counter-productive but increasing your repayments will help you pay off your loan much faster, saving you thousands of dollars in the long run.
It’s an alternate strategy that is worth considering and can be achieved in several different ways:
Higher repayments – If your loan allows and it does not attract expensive fees, make higher repayments than are necessary. Paying off your loan at a full percentage point higher than you need to will significantly reduce the length of your loan. If and when rates fall, maintain the same level of payments.
Additional payments – Whenever you come across extra money, pay it straight off your loan. It may be a bonus at work, a tax refund or even a sum left to you in a will. It will take years off the length of your loan and save you potentially hundreds of thousands of dollars. Again, you’ll need to explore if there are any fees.
Switch to fortnightly repayments – This is a great trick and one you’ll barely notice. When paying monthly, you’ll make 12 payments per year. By paying fortnightly, you’ll make 26 payments per year of half the size. By paying fortnightly, you’ll effectively take an extra month’s payments straight off the bottom line of your mortgage every year.
Switch to interest-only repayments
Conventional loans pay off principal and interest. But in some circumstances, interest only repayments may be made.
This will significantly reduce your monthly repayments. It is however a risky strategy because higher repayments will need to be made at some point in time down the track to service the loan.
Careful consideration and advice should be taken before switching to interest-only repayments and you should absolutely seek advice and explore your options with an experienced mortgage broker.
Talk with KnowHow Property today
We will research our network of more than 40 lenders and in excess of 2000 loan products.
We will then recommend the best one tailored to your specific circumstances.
Let us do the leg work, renegotiating your loan for you, so you can take the worry out of rising interest rates before they bite too deeply into your pocket.
It’s a service that we provide at no cost to your lifestyle.
Provided you are eligible and refinancing will be to your benefit, we are confident we can save hundreds of dollars a month or more every month!
We’re talking potential savings of up to $15,000 every year.
Want to know how much money you could save by refinancing? Contact us for a no obligation discussion about your mortgage options.
This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice. You should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.