Top tips to master your mortgage
It’s easier than you think to master your mortgage says Credit Union SA CEO, Grant Strawbridge, who shares his top tips on how to make that happen.
It’s a tried and true way to monitor your spending habits, work out where you can plug leaks and where you can make savings. These savings can then be tipped into your mortgage helping you to pay this off sooner.
Think outside the box when it comes to improving your household cash flow. How many store cards do you have, and are they really necessary? Is it possible to pay annual commitments, like school fees and insurance, in quarterly or monthly instalments? The improvements to your cash flow can also be directed into your mortgage
Increasing your interest rate by as little as 0.2%pa can make a surprising difference to your loan term and interest repayments. If your mortgage interest rate is 6.8%pa, pretend it’s 7% and recalculate your monthly commitment accordingly. For example, a $300,000 debt with a 25-year loan term at 6.8%pa requires a monthly repayment of approximately $2082. By increasing your repayments to $2120 – an extra $38 each month – you’ll reduce interest repayments by $18,167 and the loan term by 1 year and two months.
Increase the frequency of your repayments
Make fortnightly or weekly loan repayments rather than monthly ones.This will result in making a total of 13 months’ worth of payments over the course of year because there are actually 26 fortnights. You’d be surprised at how much of a difference that extra monthly payment will make over a 30 year loan term – it can shave years off a mortgage. Any increase in repayment frequency will have a positive impact on the loan term.
Make extra lump sum repayments
If you find you have surplus funds, even a small amount, regularly sitting in a transaction or savings account earning little or no interest, consider making this money active by depositing it into your home loan. This will result in you paying less home loan interest, and a home loan with a free redraw option means you can readily access these funds again at any time in future.
Drive your dollar further
If your loan product provides for it, it makes perfect sense to have a mortgage offset account linked to your variable rate home loan, and can result in some serious savings because the balance is offset against the amount owing on the home loan. For example, if your current home loan balance is $300,000 and the balance of your 100% offset account is $10,000, you will only be charged interest on $290,000. If you can keep savings stored in your offset account it will help to reduce the loan balance over time. Saving money on interest means that you repay your home loan sooner or at the least, build up equity far quicker.
Leverage your lender
We know it’s important to review every aspect of our financial situation – not just mortgage repayments – but life can get busy, so it’s often put on hold. Why not ask your lender for help to master your mortgage? For example, is there another loan product that is more suited to your needs, or is it possible to consolidate your debt? One where you can freely make additional lump sum repayments without being penalised with additional fees and charges? It is a good idea to compare interest and comparison rates, account balance requirements and monthly loan or account keeping fees. Your lender can run some scenarios on your behalf, making the review process much easier.
INFORMATION YOU SHOULD KNOW
This article is intended as general information only and has been prepared without taking into account the personal financial situation, objectives or needs of the reader. Before acting on this information, you should consider its appropriateness, having regard to your objectives, financial situation and needs. You should always seek professional advice or assistance before making any financial decisions.