Repaying a home loan can be expensive! Fortunately, there are things that you can do to get the most value for your money and save on mortgage repayments.
By understanding the details of your loan and adopting clever financial planning techniques, you can cut your costs and ensure that you’re not paying more than you need to. This can help you save money in the short-term and even pay off your loan sooner in the long-term.
Wondering how you can start saving on mortgage repayments? Here’s what you need to know.
Reconsider your loan term
Reconsidering your loan term can have big implications for your repayment requirements and your long-term financial goals.
Generally speaking, the shorter your loan term, the more you will be required to pay in weekly or monthly installments. The longer your loan time, the lower your minimum regular repayments will be.
Many lenders offer loan terms as brief as 20 years, while some offer terms up to 40 years, especially if you are a first home buyer.
Increasing your loan term can give you instant relief from mortgage stress by spacing your repayments out over a longer period of time and therefore reducing the minimum payments you’ll need to make now.
However, you should be aware that a longer loan term will also mean a longer journey to outright ownership, and you’ll pay more in interest along the way.
Switch your repayments
Your next option is to switch your repayment type from principal and interest to interest-only repayments.
While most owner-occupier home loans operate on a principal and interest model, interest-only repayments can reduce the amount you need to pay right now. This can be helpful if you’re currently facing high expenses or financial challenges but expect to be back on your feet soon.
Interest-only loan repayments are favoured by investors because of the way that they can improve cashflow. With this approach, you’ll pay only interest owed without paying any money off your loan.
Although interest-only home loan repayments can offer short-term benefits, you’ll need to be aware of the disadvantages too. When paying interest-only instalments, you won’t get any closer to paying back the money you’ve borrowed. If you pay interest-only for a long period of time, you may end up paying a lot more interest than you need to.
Refinance your loan
Finally, in some cases, the best pathway is to refinance your loan.
Refinancing is what happens when you move to a different lender, taking out a new loan to pay back your existing lender and switch over your loan details.
Available for most borrowers paying a variable interest rate, refinancing is a great way to rethink your financial circumstances and make changes that help you get better value for your money.
A new lender may offer different loan features or benefits in addition to a lower interest rate.
For many people, this option is the best one, as it does more than just reduce mortgage stress for now, also contributing to reduced long-term costs.
Need help with your home loan? See the list of best mortgage brokers in Melbourne and get in touch with the right broker for you.
