Simple tricks to save on your mortage
If you’re facing a bulging debt burden to finance your castle, here are five hot tips to get it under control before any rate rises, writes David Koch
IT’S the biggest financial commitment of most average Australians — meeting the monthly mortgage repayment. It’s an expensive business servicing a mortgage even with these historically low interest rates and it will become a whole lot more expensive if interest rates rise.
But there are ways to reduce that mortgage quickly and painlessly to save interest. So if you’re currently facing a bulging debt burden to finance your castle, here are five hot tips to lessen its girth and get it under control before any rate rises.
1 SAVE BY INCREASING THE FREQUENCY OF YOUR REPAYMENTS
If you make repayments monthly, then change them to fortnightly. If you make them fortnightly, change them to weekly. The advantage of this slight tweak is twofold.
Changing your repayments to a more frequent cycle will mean you make extra repayments each calendar year. Also, by increasing the regularity of your repayments you’ll end up paying less interest on the loan as there’s less interest compounding each period.
2 KEEP REPAYMENTS CONSTANT WHEN INTEREST RATES FALL
If the Reserve Bank cuts interest rates again (unlikely but not impossible), don’t go book a holiday. Instead of taking the opportunity to reduce your repayments at the first sign of a rate cut, keep them constant.
You’re already budgeted to pay a certain amount off your mortgage each week so, if you can afford to, keep doing it. The long-term dollar savings and reduction in loan time can be considerable, especially in the face of successive rate cuts.
3 TRY TO PITCH AN EXTRA $100 A MONTH INTO YOUR REPAYMENTS
If your mortgage doesn’t have you pressed to the wall, see if you can rustle an extra $100 a month out of your budget.
The impact is huge. By putting an extra $25 each week into a $300,000, 25-year mortgage at 4 per cent, the interest saving is $19,000.
Not only that, but the mortgage is shortened by a whopping two years and five months.
Or use your tax refunds, or inheritances/windfalls, to put against the mortgage.
For example, a one off $10,000 against the same mortgage will reduce your total payment by $16,000 and cut the term by one year and four months.
4 ASK YOUR FINANCIER IF THEY CAN GIVE YOU A BETTER DEAL
The Big 4 are whinging about their margins being squeezed because, thanks to the range of alternative lenders, the industry’s more competitive than ever. They want to keep their customers as much as you want a rate cut, so ask for one. Ask for a discount on your interest rate … there’s no harm.
You might have your home loan, credit card and an insurance policy with the bank, which together are quite a bit of business. You are a valuable customer so explain this when asking for a discounted interest rate and you should be able to get 0.25 per cent to 0.50 per cent off the advertised rate.
By way of illustration, each quarter point cut in the interest rate will knock about $13,000 off the loan mentioned above.
5 SHOP AROUND AND USE THE RESULTS TO YOUR ADVANTAGE
If you haven’t already done it, look seriously into switching your home loan provider.
Obviously the savings must outweigh the cost of making the switch, but it may not even come to that. If (or should it be when) you find a cheaper comparable deal, take the loan offer to your bank and ask them to match it.
Remember, comparison websites like Cannex and Finder make the process of researching comparable loans very easy.