Balancing lifestyle desires with budgeting necessities is a greater challenge as living costs rise and the economy looks uncertain. Managing your mortgage commitments, which is one of the biggest household expenses, become an increasingly important task that you need to closely monitor. How are you preparing to cope with tougher times?
Consider the following helpful hints to help you better manage your mortgage obligations
Round 'em up!
Consider rounding up your mortgage repayment amount. Take a loan of $350,000 at 7% over 30 years. If the monthly repayments of $2,329 were rounded up to $2,500 at five years in and that continued until the end of the loan term, the loan will be repaid approximately four years earlier and the interest owed is reduced by over $69,200 (if all loan aspects remained as is).
Visit your mortgage more frequently
Depending on the loan type and lender, you may save thousands of dollars in interest by paying a loan fortnightly. For example, a borrower with monthly mortgage repayments of $2,000 will pay $24,000 by year end. If they paid fortnightly, by splitting their monthly repayment in half and making repayments of $1,000, they will pay $26,000 as there are 26 fortnights in a year.
Take advantage of extra funds
An offset account attached to the home loan account acts as savings that reduce the interest accumulated on the outstanding mortgag . For example, if the above-mentioned loan has $5,000 deposited in a full offset account from day one, the term is reduced by approx. 14 months and the interest owed is reduced by $33,856. Note some lenders offer partial offset only.
Health check it
Review your mortgage and decide if you need all the features you may be paying a premium for. Compare it against others by getting a home loan health check from an experienced mortgage broker, to see if you can save money by negotiating a better deal with your current lender or by switching lenders.
Weigh up good vs. bad of switching
When deciding whether to refinance take a good look at the pros and cons, including the costs and what you really need as opposed to want. Remember to factor in all loan aspects, like features, rate, repayment type and frequency, accessibility and fees. It may be cheaper to keep your existing mortgage rather than pay new loan costs such as application fees, lenders mortgage insurance, registration fees, account fees, discharge fees, etc. Check with your broker to help you make the final call.
Do you have any tips for better managing your mortgage commitments? Feel free to share them below.