Five Ways to Save on Your Mortgage This Year

A mortgage will often be the most expensive commitment in your lifetime, so why not use every tool available to you to pay off your loan faster?

Everyone wants to be rid of mortgage repayments as quickly as possible, so we’ve compiled five simple steps you can take this year to reduce your mortgage more quickly.

1. Schedule repayments fortnightly or weekly

The most obvious way to reduce the cost of your mortgage is to make extra repayments. This can be done in a number of ways, but the simplest way is to set up an automatic payment from your bank account. This way, you don’t have to worry about forgetting to make an extra repayment – the money will be taken straight out of your account and put towards your mortgage.

If you switch to fortnightly repayments, you make the equivalent of 26 payments a year instead of just 12, which can shave years – and potentially thousands of dollars – off your loan. Talk to your lender or broker about setting this up.

2. Refinance

Again, this seems obvious but so many borrowers set their interest rate and forget. Your home loan should be something you review every year. Interest rates change all the time, and we’re currently experiencing an unprecedented period of some of the lowest interest rates in Australian history.

Whilst it can be a hassle to refinance your existing home loan, even the smallest of reductions can save you thousands of dollars over the life of your loan. If you’re not confident in negotiating with your bank, you can always reach out to a Yellow Brick Road mortgage broker and ask the simple question: “Is there a better rate available for me?” A mortgage broker can then assess your situation and provide you with viable options to reduce your rate.

3. Leverage loan features like offset accounts or redraw facilities

Whilst these two loan features work differently, they both produce the same result: they reduce your principal repayable amount, meaning your interest is calculated at a lower amount.

Not all home loans have these options, and some have fees attached to it, so look at the fine print and understand what opportunities your home loan provides to make savings.

• Redraw facility: this is a loan feature that allows you to withdraw any extra funds you’ve contributed to your repayments above your minimum repayments. For example, if your minimum monthly repayment is $2500 and you choose to pay $3000 every month for a year, at the end of the 12 months, you will have contributed an additional $6000 into your loan. This means you have $6000 which can be “redrawn” from your lender for those home renovations, that family holiday or whatever you need the funds for. Learn more about redraw facilities here.
• Offset facility: An offset account is a bank account that is linked to your mortgage and essentially works as a savings account. The balance in the offset account is deducted from the amount owed on your mortgage, and your interest is then charged at the reduced mortgage balance. For example, if you have a home loan of $400,000 and an offset account with a balance of $20,000, you only pay interest on the equivalent of $380,000. Learn more about offset facilities here.

4. Make use of your equity.

The amount you owe your lender minus the value of your property is known as equity. For example, if your property is valued at $1,000,000 and you owe your lender $700,000, then your equity is $300,000 or 30%. As the value of your home rises, so does your equity.

The higher your equity, the more likely a lender will consider you a ‘low-risk borrower’, meaning you may be able to access lower interest rates. Unfortunately for borrowers, this does not occur automatically, so you will have to be proactive and compare your interest rate with the rate your lender is advertising to new clients and ensure your rate is competitive. If it isn’t, it’s time to renegotiate your arrangement or be prepared to refinance to a new lender.

5. Monitor your mortgage

This one is a little more involved, but it’s worth it. Home loans are complex products, and there are a lot of factors that go into reducing the cost of your mortgage. By monitoring your home loan and keeping an eye on the market rates throughout the year, you can make small tweaks to your home loan, potentially saving you thousands to tens of thousands of dollars over the life of your loan. You can always stay in touch with your mortgage broker to understand how your current loan could be improved. By working with one of our experienced mortgage brokers, they can consider how you might employ new loan features to your advantage and create the most effective plan for your specific requirements and objectives.

If you haven’t looked at your home loan in a while, or you get the feeling your current arrangement isn’t competitive, reach out to one of our home loan experts or apply online today.