7 Ways To Turn The Tables On Your Mortgage! #Savings
Why is now a great time to refinance your mortgage?
- Australia has the third most expensive housing market in the world.
- As many as 83% of people are paying too much on their mortgages.
- Even though interest rates have fallen to record lows, a whopping 94% of mortgage holders have not refinanced their loan in the past 12 months – potentially missing out on saving thousands of dollars.
- Research shows that 38.8% of all mortgage holders are experiencing mortgage stress.
Surely there’s some GOOD news?
The short answer is YES. There are some straightforward steps you can take to turn the tables, save thousands and take years off your loan…saving $33,222* in the process.
* Calculation based on $400,000 mortgage over 25 year term at 3.8% interest per annum on a variable rate, P&I. This calculation is not an offer of credit and does not take into account your personal circumstances. It is intended for use as a guide only. It is not intended to be relied on for the purpose of making a decision whether to apply for finance. It provides an estimate of the repayment amount based on the proposed borrowed amount. Other fees and charges may apply.
Negotiate a better interest rate
Studies show that 82% of Australian population don’t know their current interest rate. And yet, with your mortgage likely taking up at least one quarter of your monthly income, even the slightest change in your rate could make a huge difference to your monthly disposable income.
For example, for every $100,000 you borrow, even a 0.1% discount will save you roughly $100 per annum in interest. Maybe that doesn’t sound like much, but let’s take a look at the maths…
Let’s say you have a $400,000 loan with a repayment term of 25 years. And let’s say you can save 0.5% on your interest rate, going from 3.8% to 3.3%… that means you would save $32,273 over the life of your loan. What could you do with $32,273 back in your pocket over the course of your loan? That’s family holidays, a new car, helping the kids out, maybe installing that pool you’ve dreamt of. And it’s definitely enough to take the pressure down.
Shift from monthly to fortnightly payments
Many people pay their mortgage monthly – so that’s 12 payments a year. But if you can shift from 12 monthly payments to 26 fortnightly, you can make BIG savings over the life of your loan.
Here’s why… let’s say your monthly mortgage payment is $2,500. Over 12 months that’s $30,000. Now let’s look at what that looks like if you paid half your monthly payment every 2 weeks instead. That means you would pay $1,250 over 26 fortnights or $32,500. That’s finding a way to get $2,500 more off your loan each year and because you are spreading it out over the year, you don’t notice it as much (equates to an extra $48 a week).
BUT the cool thing this does to your mortgage is that every cent you pay above and beyond your set repayments goes directly to paying off your principal loan amount – and that’s the amount your interest is calculated on. So, the sooner you reduce your principal, the sooner your interest payments come down… and the sooner you get your mortgage paid off!
In fact, simply by shifting from monthly to fortnightly you could take 3 years and 1 month off your mortgage and put a whopping $30,160 back in your pocket in saved interest payments.*
*( Based on a $400,000 loan over 25 years at 3.8% p.a interest rate.)
Small sacrifices now = big wins later
When you first get your mortgage, those payments can look quite intimidating. But then, after a couple of years, maybe you’ve had a pay rise or two, or your business has grown. Perhaps you got that promotion you were after, or you landed your dream job with the nice bonus package you always wanted. While it’s great to enjoy those perks and the extra cash they put in your pocket, making even a small increase to your mortgage payments at those milestone moments can have a HUGE impact and really turn the tables on your mortgage.
As mentioned earlier, every cent you pay above and beyond your scheduled mortgage payment goes towards knocking down that principal amount. So, if you could find even another $100 a fortnight (that’s $50 a week) you could take another 3 years and 7 months off your mortgage AND save another $36,036*.
*(Based on a $400,000 loan over 25 years at 3.8% p.a interest rate.)
Get a mortgage offset account
When you get a standard variable loan (meaning the interest rate isn’t fixed), you usually have the option of putting your income and savings into what’s known as an offset account. That’s simply a separate savings account attached to your loan account.
As the name suggests, your offset account works in tandem with your home loan, with its balance being subtracted from the outstanding home loan principal when your daily interest charges are calculated. By adding your savings into that account and getting any income paid into that account as well, you can take a healthy bite out of the principal, simply by getting the money you already had working smarter for you.
For example, if you have a $400,000 mortgage and $20,000 in your offset savings account, you will only be charged interest on $380,000, even though your loan balance is $400,000.
Be Smart with your equity
Check if your loan offers a redraw facility that enables you to access and withdraw additional repayments you have made. If you were worried about putting extra money into your mortgage, you don’t need to be, if you have a redraw facility.
This means you can put as much money as possible into your mortgage, keeping your interest down and paying your mortgage off faster, however still redraw the money if you need it.
It’s also possible to use those funds to consolidate debts with higher interest rates such as credit cards and personal loans. Often your home loan interest rate is a fraction of other interest rates and consolidating your loans can lower your interest, freeing up income. Having this kind of flexibility can give you peace of mind and help you out when you really need to access those additional funds.
Watch out for hidden fees & negotiate
It’s always nice to be aware of all the fees included in your loan (some hidden fees can end up being costly!) and you may also want to negotiate on those fees – hard. Many lenders will reduce or remove fees such as:
- Loan application fees
- Loan establishment fees
- Service fees
- Valuation fees
- Legal fees related to your mortgage
- Account transaction fees
- Exit fees
And this can equate to thousands of dollars in savings, in some cases.
Getting the data you need , when you need it
Information is power. And that means you need to be able to access clear, accurate information on your home loan wherever and whenever you want (and in a format that you want). That includes your current interest rate (if variable) and your current loan balance. Plus, you want the flexibility to be able to make changes online at any time via a mobile app or your home or office computer.
For most people, the ideal way to get this information is online. But not all online banking experiences are created equal. You need to be able to access your home loan information easily, via a simple online interface that is available for both mobile and desktop use.
And, if you are one of the 5.7 million Australians who don’t use internet banking, you need to make sure you are getting the information you need in a way that is timely and transparent.
If you have any questions, let one of our senior advisors put you in direct contact with our Lending Partner, Loan Market Lower North Shore, experts in turning the tables on your mortgage. This could be the best time you have invested all year!