10 Awesome Tips for Cutting Your Mortgage Costs
Use These Tips to Make Your Home Loan More Manageable
Working with a buyer’s agent in Sydney will help ensure you get good value for the home that you bought. However, you’re also going to have to put some thought into how you’ll repay your mortgage.
For example, you could ask yourself what are the additional costs involved in buying property?” Sometimes, you can use these additional costs to reduce your mortgage bill. Paying a higher deposit, or higher mortgage fees, could give you access to features that save you money in the long run.
Anything that you can do to cut your mortgage costs will benefit you in the long run. You may end up paying less interest, or get the loan repaid faster.
So how do you repay your mortgage faster and cut some of the costs you face? We’ve come up with a list of ten great tips for cutting the cost of your mortgage.
Tip #1 – Make Extra Repayments
Our first tip is also the simplest on this list. Making extra repayments will benefit you in the long run when it comes to cutting the cost of your mortgage. It all comes down to the interest that you pay on the loan. The faster you repay the loan, the less interest you have to pay. Making extra repayments covers that base, which could save you thousands of dollars in interest payments.
So, if you have any money to spare you should use it to repay another portion of your mortgage. Even one or two extra repayments per year can go a long way toward saving you money.
You get an added bonus as well. Your equity builds with every repayment you make. This means that you have access to a pool of money for other purchases, though you should remember that using your equity will set you back with regard to repaying your home loan.
Tip #2 – Find a New Home Loan
The mortgage that you have now may not be the one that’s best suited to your current circumstances. Remember that mortgage products change all the time. There may be plenty of new offers out there that you could take advantage of.
Try to make it a habit to check for new mortgage packages once every year or two. Other lenders will want to tempt you away from your current lender, so you may find they’re willing to offer deals that could help you to pay less on your mortgage. For example, you could access a lower interest rate, or a range of new features and discounts that will help you.
Of course, you shouldn’t forget about your current lender either. Your lender will want to keep you if you’ve made regular repayments without any problems. As a result, you could use your search for a better mortgage as leverage against your current lender. You may find they offer some discounts, all without the extra fees you have to pay when you take out a new home loan.
Tip #3 – Split Your Mortgage
Some lenders offer you the opportunity to split your mortgage into two parts. You repay one part based on the lender’s standard variable rate, with the other part on a fixed interest rate.
It sounds complicated, but it’s a great way to cut the cost of your mortgage. It works like this. You can move between the two parts of your mortgage whenever you want. This allows you to repay whichever part has the lowest interest rate attached to it.
If your lender’s variable rate increases, you can switch to repaying the fixed account. You still repay the same amount of the principal per month, but you also pay a lower rate of interest. When the variable rate falls below your fixed rate, you can switch back to the other part. With proper management, a split mortgage can save you thousands of dollars in interest payments over the lifetime of the loan.
Tip #4 – Budget Effectively
You need to know how much money you have available before you buy a property. Freeing up more of your income offers you the opportunity to take advantage of the other tips on our list.
Record every expense that you have to pay over the course of a month. Everything from repayments on your personal loans, through to non-essential items should go on this list. Now, you can start chopping and changing things to free up more money.
Get rid of as many of the non-essentials as you can. For example, that gym membership you never use could be preventing you from making extra repayments on your mortgage. As for your personal loans and credit cards, the best advice is to get them paid off quickly. Increase your repayments until you clear those debts, then use the money you save on extra repayments for your mortgage. This has the advantage of reducing the amount of interest you pay on both your mortgage and your personal debts.
Tip #5 – Use an Offset Account
Have you heard of offset accounts? If you’re on a basic home loan package, you may not have been offered access to one. If that’s the case, you need to change the situation. An offset account could be your key to massively reducing your interest payments.
It works like this. An offset account is a separate account that your lender links to your mortgage account. Any money you put into the offset account reduces the principal of your loan. For example, if you have a mortgage of $400,000 and have $100,000 in an offset account, you only make mortgage repayments on the remaining principal of $300,000. At the end of the loan, you use the money in the offset account to repay the other $100,000.
How does this benefit you? Well, that reduced principal means that you pay less interest. Remember that lenders charge interest on the remaining principal of the loan. If you can take a bite out of the principal with your savings, you can save thousands of dollars in interest payments.
Tip #6 – Take Advantage of Lump Sums
Many home loan products come with the option of repaying a lump sum on the mortgage, on top of your regular repayments. The terms attached to these lump sums will depend on your lender. Some allow you to make regular lump sum repayments, whereas others may restrict you in various ways.
It all comes down to your interest payments again. Paying off a lump sum means you put a big dent into your mortgage’s principal. As we’ve already noted, a lower principal means you don’t pay as much interest.
It’s a good tactic to spend a few years scrimping and saving to create a lump sum payment. If you’re only allowed one, it pays to maximise it. Sell any assets that you don’t use anymore, and spend a few years depositing your tax refunds into a savings account. That big chunk of money could help you to save thousands of dollars.
Tip #7 – Make a Quick First Repayment
Most lenders offer you the chance to wait for a month before you make your first mortgage repayment. This seems like an attractive offer. It gives you the chance to settle into your new home, plus it allows you to absorb the effects of all of the additional costs of buying a home.
However, a delayed first repayment does add money to your mortgage. It means you delay the repayment on the loan’s principal, so you end up paying more interest.
Instead, try to make the first repayment on the day of the loan settlement. Yes, it has a fairly small effect. But even so, that first repayment does affect your interest payments, plus it can set you up as you mean to go on in relation to how you repay the rest of the mortgage.
Tip #8 – Avoid Interest-Only Loans
An interest-only loan allows you to cut the monthly cost of your mortgage. You will only pay the interest that your lender charges on the current principal, which could save you a couple of hundred dollars every month.
So why should you avoid them? It’s simple. Interest-only loans don’t allow you to repay any of the principal of the loan. If you’ve been paying attention so far, you’ll know that getting more of the principal repaid is the best way to cut the cost of your mortgage.
Interest-only loans help in emergency situations, or if you’re a property investor. However, you should avoid them if you want to cut the cost of your mortgage. That extra few hundred dollars per month won’t mean much if you have to pay thousands of dollars more in interest over the lifetime of the loan.
Tip #9 – Don’t Lower Your Minimum Repayment
You may get the opportunity to decrease your minimum repayment, especially if the interest rate falls. Again, this will help you to save money in the short-term, but you won’t end up saving as much as you could.
Let’s say you’re repaying $1,200 per month on a principal and interest loan. The interest rate drops, and your lender offers you the chance to reduce your minimum repayment to $1,000 per month. That’s $200 extra in your pocket each month.
However, it’s also $200 that could have gone towards repaying the loan’s principal. If you keep your repayments the same during times when the interest rate is low, you can repay more of the principal. Again, this has the long-term effect of ensuring you pay less interest during the course of the loan.
Tip #10 – Pay a Higher Deposit
We’ll end with something you should do when you apply for your home loan. You’ll usually have to pay a deposit to purchase a new property. The size of your deposit can have a drastic effect on how much you repay during the lifetime of your mortgage.
Let’s assume your home costs $600,000. You might be able to pay a 5% deposit on that property, which places your principal at $570,000. You’ll pay interest on that principal.
But what about if you pay a 20% deposit? That pulls the principal down to $480,000. As a result, you’ll avoid paying interest on $90,000 which you would have had to pay with a 5% deposit. This will save you thousands of dollars in the long run.
With the help of a buyer’s agent in Sydney, you may be able to put these tips into action. Doing so could help you to save thousands of dollars on your mortgage.
We can also help you if you’re looking to save money on the cost of buying a home. Contact our buyer’s agents in Sydney today.