With rising living costs and an uncertain economy, we’re all looking for ways to trim the budget – and what better way to save than on your mortgage?
One of the biggest expenses in any household is the mortgage repayment, with an average $350,000 mortgage snatching a little over $2,580 from your bank account each month.
Over the course of a 25-year home loan, this generates interest payable to the bank in the amount of a staggering $425,000.
However, with a few small, strategic 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.
To help you manage your mortgage more effectively and reduce the amount of interest you pay your lender each month, here are some helpful hints to get you ahead:
Tip #1: Cut your payments in half
This tried and true strategy has been saving mortgage-holders bucket loads of cash for years. You simply take your monthly mortgage repayment – say $2,000 – and cut it in half ($1,000), and then pay this amount fortnightly instead of monthly. With monthly repayments of $2,000, you will pay $24,000 off your loan by year’s end.
However if you pay fortnightly, by splitting the monthly repayment in half and making repayments of $1,000 every two weeks, you will pay $26,000, as there are 26 fortnights in a year.
Tip #2: Round up
By rounding up your home loan repayment amount even a small amount, you can make a significant dent on your mortgage interest bill. 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 roughly four years early, and the interest owed will be reduced by over $69,200.
Tip #3: Take advantage of extra funds
An offset account attached to the home loan account acts as savings account that can substantially reduce the interest accumulated on the loan amount. For example, if the above-mentioned loan has $5,000 deposited in a full offset account from day one, the term is reduced by approximately 14 months and the interest owed is reduced by around $33,856.
Tip #4: Get a health check
Review your loan to 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 your mortgage broker, to see if you can save money by negotiating a better deal with your current lender or by switching lenders.
To discuss this article or anything to do with your finances, please call our office today and we will be happy to assist you.