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How to avoid overpaying on your mortgage in 2022

By ,| 5 min read

For most Australians, their home loan will be their biggest financial obligation. So, there’s no reason to make it more expensive than it has to be. Make 2022 the year you get a competitive home loan and low interest rate.

In this article, we’ll go through the signs that can indicate you’re overpaying on your mortgage and how to avoid this, as well as looking at when and how often you should consider refinancing.

What are the signs that you could be overpaying on your mortgage?

There are a few things you can look out for that might indicate you’re overpaying on your home loan:

1. You haven’t refinanced (or at least considered refinancing) in over two years

Home loan interest rates can fluctuate regularly, so it’s good to stay on top of them to ensure you’re still getting a good deal on your mortgage.

Home loan rates are still at record lows going into 2022, so there’s still time to lock in a competitive rate.

2. You have noticed that there are more competitive interest rates out there

Whether you’re ready to refinance or not, it’s important to be aware of what rates your lender and other lenders are offering customers.

Keep an eye out for what rates new customers get with your lender. If these new rates are lower than yours, you can try to negotiate a lower rate.

Being complacent with your home loan interest rate has the potential to cost you thousands over the years. Refinancing probably isn’t as complicated as you might think, and it’s often very worthwhile!

3. You’re paying for features you aren’t using

You could be overpaying on your mortgage if you’re paying for home loan features that you aren’t using. For example, some borrowers find themselves paying an annual fee for an offset account that is completely empty.

While having an offset account can be a great way to save on interest, it’s counterintuitive to have one that you aren’t using. Check your loan terms or ask your lender to make sure you aren’t paying for things you don’t need.

When selecting a home loan product, consider whether you’d be better suited to a more basic home loan versus one with all the bells and whistles (and fees that come along with it).

4. You’re paying too many fees

With so many lenders offering zero-fee or low fee home loans, it’s often just not worth it to pay large amounts of fees.

Research and compare your home loan with what other lenders are offering and make sure you’re happy with it.

Bear in mind that zero-fee home loans aren’t always as good as they sound. For example, some lenders will charge a slightly higher interest rate to make up for the lack of other costs recouped. Do your calculations to check whether fees are worth it or not.

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How to avoid overpaying on your home loan

The first step to avoid overpaying on your home loan is to not switch off once you settle your loan. It’s common for borrowers to get approved for a loan and then turn a blind eye to the property market and interest rates.

Even if you don’t plan on refinancing soon, it’s a good idea to observe interest rates, keep an eye on the Reserve Bank of Australia (RBA) cash rate, and just generally research all things property finance. This way you can be prepared for changes, such as a possible predicted interest rate hike.

You can also consider consulting with a mortgage broker. They will be able to take a look at your current mortgage and determine whether you might be able to find something better. Even if you’re just curious about what’s out there, they can help explain the market and tell you about your home loan options.

Avoid overpaying as rates rise

With interest rates set to continue rising gradually, you may be able to avoid overpaying on your mortgage by locking in a competitive fixed interest rate in 2022.

Many lenders are offering 1-5 year fixed rate mortgages that could help you secure a low rate for years to come.

Click here to find out more about fixed, variable and split rate home loans.

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What to do if you are overpaying on your home loan

If you think that you’re overpaying on your mortgage, it might be time to look into refinancing. Refinancing can give you that home loan refresh you need to pay less and be on track to own your home outright sooner.

Even if you aren’t overpaying on your loan, there are some other reasons to consider refinancing:

1. When you can save money

One of the top reasons borrowers refinance is to save money. This can usually be achieved by switching to a lower interest rate or finding a home loan with low fees.

Even if your new rate is just 0.5% lower than your existing one, you could save significantly over time.

See the following table for how your monthly repayment amount could drop if you get a lower interest rate:

Loan amountLoan termInterest rateEstimated monthly repayment amount
$500,00025 years3.5%$2,503
$500,00025 years3.0%$2,371
$500,00025 years2.5%$2,243
$500,00025 years2.0%$2,119

So, if you have a $500,000 loan balance and refinance from a 3.0% interest rate to a 2.5% interest rate, you could save $128 per month.

This may not seem like much, but it adds up to $1,536 per year, or $7,680 over five years.

2. Your income has changed

If you get a pay rise, you might consider increasing your home loan repayment amount. Doing this would help you pay off your mortgage faster and save on interest.

On the other hand, experiencing a drop in income could force you to restructure your home loan through refinancing. While not always possible or advisable, you may be able to decrease your monthly repayments by increasing your loan term.

It’s a good idea to speak with a financial advisor before making major changes to your home loan structure.

3. To consolidate your debt

If you have other debts like credit cards, personal loans or car loans in addition to your mortgage, this can get a bit overwhelming to manage. Debt consolidation allows you to merge these various debts into your home loan.

So, you’ll make just one repayment per month, rather than various repayments for your individual debts. Plus, your consolidated debt will be charged at your home loan’s interest rate. Home loan interest rates are typically lower than rates for credit cards and unsecured debts.

4. Tap into home equity

You may want to access your equity at some point to fund a renovation, new investment, or other major expense. You may be able to do this through a home equity loan.

5. Switch between a fixed and variable interest rate

With interest rates rising, many borrowers are considering fixing their interest rate. To switch between a fixed and variable interest rate, you’ll have to refinance your home loan.

Think you’re overpaying on your mortgage? Book an appointment with a Home Loan Specialist to talk through your home loan options.

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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: home loan, refinance, fixed rate home loans, fixed-rate mortgage, fixed interest, interest rate, variable interest

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