It feels like a lifetime. A mortgage, that is. And that’s what ‘mortgage’ actually means in latin… a ‘death pledge’. Basically either the debt, or you, dies first.
To think that you’re stuck paying interest to a bank for 25 or 30 years…it’s depressing. More if you need to refinance to renovate or deal with rising interest rates.
But the good thing about such a long mortgage term is that if you are smart, you can make slight alterations that save you hundreds of thousands of dollars in the long term, plus shave years off your repayments, without disrupting your finances and investment ambitions in the here and now.
Say you paid off a loan of $1 million over 30 years at one of today’s average variable rates, say around 7%, you’d end up paying the bank back $2.4 million. Yep, that’s more than double your initial loan amount.
You could save $120,000 in that time, just by knocking 0.5% off your repayment rate. A full per cent would save you $240,000. It may be spread over time, but it’s a good example of how the savings, or lack thereof, can all add up. The key is to pay as little money to your bank as possible. Here are 5 ways to do so.
Pay more per month
It’s weird that you might need to pay more to pay less, but that’s how it works. Boosting your monthly repayments on your loan is one of the most effective ways to save more money, and years, over the life of your loan.
Making even modest extra payments when you’re able will reduce the principal further and therefore the interest you are charged on it.
Pay more frequently
Many borrowers make their home loan repayments monthly, but you don’t have to. Changing up the frequency so you can pay fortnightly, or even weekly, can mean you make up to an extra month’s worth of payments each year, because there are 12 months, but 26 fortnights in a year.
An extra month paid each year will make a large difference, but you need to make sure the fortnightly repayments you make are half the total of the monthly repayments you were making. Some lenders will automatically calculate it differently so that you are paying the same amount each year as if you were still paying monthly. Paying more frequently will also mean your balance is lower for longer, so will attract less interest.
Refinance, or at least threaten to
Lenders offer their best deals to new customers or those threatening to leave. If you have been making your repayments for longer than a year or two, you can rest assured there will be better deals out there.
Be aware of the best interest rates on the market and make sure you are ready to refinance if needed, or at least tell your current lender you will jump ship if they don’t give you their best rate.
The longer you are paying off your home, you may find the more equity you have earned, which can improve your loan to value ratio (LVR) and put you in a better bargaining position to access better rates from multiple lenders.
Structure your loan correctly
Borrowers who save the most on interest will usually have their loans attached to an offset account. This means that any money you accumulate in savings can be used to reduce the amount of the loan you are charged interest on, while you are still able to access the money if you need it.
For example, if you owe $1 million on your loan, but have saved $100,000 in your offset, you are paying interest on $900,000, but are still free to invest the $100,000 if you want.
You may also experience a sudden windfall, such as an inheritance, or an unexpectedly large tax return. Putting this into your home loan or offset will make it worth even more once compound interest is taken into account.
Befriend a broker
Most people buy or sell property a handful of times in their lives…who knows what has changed in the landing space since you last purchased 10 years ago?
I’ll tell you who knows, a mortgage broker. A good broker can point you towards the loan that will save you the most money over time and provide the best features for your circumstances. A great broker will know about government grants or other stimulus that you might be eligible for, which would also save you money and time on your loan.
consider speaking with a broker from Zinger Finance, they might be able to help you navigate your options effectively and potentially save you money over the life of your loan. It’s always a good idea to consult with professionals who can tailor their advice to your specific financial situation.
