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.
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.
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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.
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.
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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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.
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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.
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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.
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