Trimming the budget is something we all seem to do from time to time and saving on the mortgage is a great place to start.
One of the biggest expenditures in any household is the mortgage repayment, with an average $400,000 mortgage taking over $2,000 from your bank account each month. Over the life of a 30 year home loan, this generates interest payable to the bank in excess of a whopping $300,000. (use our mortgage calculator to work out your repayments).
With some clever changes to the way you manage your mortgage, you can actually reduce the amount of interest you pay and reduce the overall term of your home loan.
Adding to your regular repayments by any amount over and above the minimum will reduce the principal loan amount owed, therefore reducing the loan’s term and interest paid over its lifetime.
This can protect you from any unexpected changes that can happen in life. The great news is that if financial hardship doesn’t come your way (and let’s hope this is the case) you will be living debt-free sooner, which can create opportunities for other investment opportunities to help you build a strong financial future
Check out the following tips to help you manage your mortgage more effectively and reduce the amount of interest you pay your lender each month.
Halve your payments
This approach has been saving mortgage-holders loads of cash for years. Simply take your monthly mortgage repayment – say $2,000 – halve it ($1,000), and then pay this amount fortnightly instead of monthly. Monthly repayments of $2,000 will cost you $24,000 per year. If you pay fortnightly, by splitting the monthly repayment in half and making repayments of $1,000 every fortnight, you will pay $26,000 because there are 26 fortnights in a year.
Round up your repayments
Rounding up your home loan repayment even by a small amount can make a substantial reduction on your mortgage interest amount. Take a loan of $400,000 at 4.5% over 30 years. If the monthly repayments of $2,026 were rounded up to $2,200 and that continued until the end of the loan term, the loan will be repaid years earlier, and the interest owed will reduce by tens of thousands of dollars.
Use extra funds
An offset account connected to your home loan acts as savings account that can considerably reduce the interest accrued on the loan amount. For example, if you have a loan balance of $400,000 and an offset account with $10,000 you will actually be paying interest on your mortgage of $390,000. The savings are significant and will ultimately reduce your loan term further.
Book a free financial health check
Reviewing your loan to see if you can get a better interest rate, product and/or features could save you a lot of money over the course of your loan’s life. It’s free and doesn’t take up much of your time.