With interest rates and the cost of living set to rise over the coming year, it may be time to re-examine your budget and identify a few areas where you can save money. For many people, a mortgage represents a large part of the budget, so it makes sense that this should be one of the first places to look.
Here are five ways you could potentially save money on your home loan:
1. Pay fortnightly
This old trick remains one of the best ways to save money on your home loan. Effectively, paying this way means you will make the equivalent of an extra month's repayment - as there are 26 fortnights in a year – than you would if you were paying monthly. For a $250,000 loan at 7.5% fixed interest, paying fortnightly can knock 4 years and nine months of your repayment time and save over $67,000.
2. Spend money to save money
At a time when money is getting harder to find for some families, it might be difficult to convince yourself to pay more than necessary on your home loan. However, if you can increase your repayments, even from as little as $10 per week, you can experience significant gains over the life of a loan (over $16,000 using the same scenario as above). If this isn’t an option, consider setting up a mortgage offset account so that your savings will effectively reduce the interest you have to pay. Just make sure an offset account suits your budgeting style, and be wary of excessive fees.
3. Negotiate a better deal
You can use competition in the home loan market to your advantage without the hassle and cost of switching your loan. A genuine look at what the market has on offer and a phone call to your lender may be all it takes to negotiate a better rate on your home loan. If your loan comes with extra features, such as offset accounts or redraw, make sure they are adding value to you. If they aren’t, you may even be able to switch to a cheaper product with the same provider without incurring any switching fees.
4. Make bulk payments
A one-off bulk payment, such as your tax return, can also save you big money on your home loan. A lump sum payment of $3000 made in the first three years of a $250,000 loan can save over $12,000 across the life of the loan. The more you can pay, the better off you will be financially in the long run.
5. Health check your home loan
It’s a good idea to health check your home loan periodically. As the industry changes, it’s important to check whether a home loan product still meets your needs and is offering good overall value compared to what is on offer on the market. There are many online tools that allow you to do this, including the CHOICE Compare, Ditch and Switch website.
If you have some other ideas about how to save money on your mortgage add a comment and share them with the CHOICE community.