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How can I reduce my mortgage repayments?

As a homeowner, you’ve probably questioned whether you could be paying less on your mortgage repayments. Perhaps your financial circumstances have changed since you got your mortgage and you’d like to lower your monthly repayments.

Whatever your reason, there’s always a way. We’ve compiled some of the options you have if you’d like to pay less in your home loan repayments.

Get a lower interest rate

Given that interest rates are incredibly low right now, it makes sense to be seeking out a new interest rate. A lower interest rate means lower monthly repayments. Plus, even a small rate reduction could result in big interest savings over time.

Start by seeing what interest rates your existing lender is offering to new customers. If these rates are lower, you can ask your lender to reduce your rate to match. Lendi is happy to negotiate on your behalf, if you’d prefer.

Sometimes lenders will even lower your interest rate without requiring you to fully refinance. Typically it will help if you have a good repayment history, healthy credit score and at least 20% in home equity.

If your lender is unwilling to offer you a lower rate or you think you could do better, don’t be afraid to branch out. Other lenders may offer more competitive interest rates and better overall home loan packages.

Lendi works with over 35 different Australian lenders. Start searching and comparing home loans today:

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Refinance and reduce your monthly repayment amount

If you’re experiencing financial hardship, it may make sense to reduce your minimum monthly repayment amount. By doing this you will likely extend your loan repayment term. However, it’s very important that you speak to an experienced financial advisor and approach with caution. By extending your term, you’re not actually saving and will end up paying a lot more in interest over time.

Don’t forget to focus on looking for low interest mortgages as this could minimise how much you need to reduce your repayments by.

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Interest only repayments can free up cashflow

Switching to an interest only home loan structure will mean that you only pay off the interest accumulating on top of your loan balance. You aren’t reducing the principal (loan amount) and have to be prepared for increased repayments when the interest only period ends. Most interest only loans last between 1 and 5 years.

This type of mortgage repayment structure is generally a better option for property investors, rather than owner-occupiers. There are tax incentives for investors, but it's not the right path for everyone.

Interest only loans are also more difficult to get approved for as they come with higher risk. Your lower monthly repayments will only be low during the interest only period. Afterwards, your repayment amount will increase sharply as you have to pay both principal and interest.

Find a loan with fewer fees

Fees can vary significantly between lenders and individual home loan products. For example, some home loans have maintenance fees that are charged monthly or annually while other loans will have no fees. If it’s a priority for you, Lendi can try to help you find a fee-free loan.

Bear in mind that in lieu of charging loan fees, some lenders will charge slightly higher interest rates to account for any account upkeep required. When refinancing, always assess whether the benefit will outweigh the fees involved. A mortgage with no fees means nothing if the interest rate is higher than the standard.

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Check if a split rate reduces your repayments

A split-rate mortgage is a great option if you’d like to combine the best of a variable rate home loan with a fixed rate home loan.

The benefit of a home loan with a variable interest rate is that it offers a great deal of flexibility. You can usually make unlimited additional repayments and, while the RBA cash rate is low, enjoy a lower interest rate.

Another benefit of variable rate home loans is that you typically have greater access to useful loan features, such as offset accounts and redraw facilities. An offset account and redraw facility operate similarly to reduce the interest you have to pay on your loan balance. If, for example, you had a loan balance with $200,000 and a linked offset account with $20,000, you’d only have to pay interest on $180,000.

How much can you save with an offset account?

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A split-rate home loan offers the best of both worlds. When your fixed term comes to an end, consider refinancing to a split loan to enjoy a potentially lower interest rate on the variable portion of your mortgage,

Now that interest rates are so low, if you’re on a variable rate loan, you could fix a part of your loan so that it is unaffected when rates rise. This way, you can enjoy flexibility and stability.

Got a home loan question? Just ask!

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: interest rate, home loan, refinance, lender, equity, offset account, variable interest, fixed interest, interest only, split rate, split loan

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Important legal stuff

Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 35% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors. Lendi's board is majority independent and non-executive.
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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