Interest rates are rising, cost of living is going up, and the cost of borrowing is slowly and steadily making an increase. When you have a mortgage broker or a financial adviser, you can find some excellent ways to save money on your mortgage and save you a heap of hassle down the line.
As of December 2021, there are $193billion worth of loans due to come off their fixed terms over the next 12 months. That is a lot of money floating around, and that’s also a lot of headaches that can be saved with these rising interest rates. And, more often than not, banks don’t really help in providing the right money-saving opportunities.
To learn more about how to save money on your mortgage, keep reading.
Lower the interest rate if possible
If you have the capacity to get a lower rate, get on to it. Talk to your financial adviser to see what’s available for you – we’re finding some clients are getting in touch to break a fixed loan rate and lock in something lower for a longer period of time. If you have a refix due soon, now could be a great time to jump on the lower rate bandwagon, however we have seen some of the banks stabilise the increase.
Increase the term out to 30 years
The beauty of a long loan-term is that it lowers your repayments, giving you more cash in hand to do what you want to do. Giving yourself a 30-year term will put you on the minimum repayments, meaning this is the minimum amount you pay for principal and interest for your loan, and give you some breathing room.
Know how to work principal & interest vs. interest only
Changing the full loan from principal and interest to interest only can help you save a heap of sweet cash. Or alternatively, split it between the two. Interest only loans can be helpful in the short-term, as this type of loan will keep your repayments as low as you can go.
Check out a cash back
Haven’t refinanced in a couple of years? Banks are very aggressive in getting you to switch to them, and change from the old lender you were previously with – often offering up some sweet onboarding deals like a mortgage cashback. If you want to read more about them, read it here, but all it really is, is an incentive to get you to switch and they will pay you (in an ideal world) a couple thousand dollars for making the effort!
Utilise a latest valuation
When looking to refinance or refix, it can be a great time to review the valuation on the house! As this is an investment, assets can only go up in value (especially over the last few years) and you can look to leverage this price. This is especially helpful for people who got a home loan using a Low Deposit Loan, or anything less than 20%. With the value of your home steadily increasing, this can be a great opportunity to check out how much you own now, and get the full effects of capital gains!
Use your cash wisely
And by cash, we mean any money in general sitting around – particularly useful if you have savings just sitting, unused, in a bank account. By setting up a revolving credit (otherwise known as an offset facility), you can leverage this against the mortgage. It requires a lot of discipline, but the purpose of this is that you put your savings on the mortgage, lowering your home loan total. For example, say you’re a legend at savings, with about $50,000 sitting in an account. Maybe you’re halfway through paying off a mortgage, now valued at $550,000. If you utilise those $50,000 in savings and put that on to your mortgage as a revolving credit, you actually only pay $500,000 on your mortgage.
The catch-22 to a lot of these is the management between day-to-day cash in hand vs. your loan terms and total mortgage repayments. For example, if you’re paying your mortgage off in accelerated fortnightly repayments (26 yearly payments compared to true fortnightly payments being 24) you can save five years off your loan term – which is crazy to think about! Even having a 30-year term is really long!
We always say do what works best for your goals, needs, and situation. The tips to save money on your mortgage above will help give you cash in hand, while paying off your mortgage. If you are keen on looking at how to best make your money work harder for you, get in touch.