Mortgage repayments are the largest expense in a household. A $350,000 mortgage will require just $2,580 per monthly from your bank account. This amount is $425,000 of interest over the term of a 25-year home loan. To find out more, visit our mortgage calculator.
By making some strategic changes to your mortgage management, you can lower your interest payments as well as the term of your mortgage.
“Increasing your repayments by any amount above the minimum will reduce the principal loan amount owed, thereby reducing the loan’s term and interest paid over its lifetime,” says Mortgage Choice spokesperson Kristy Sheppard.
This creates a safety network that can help you prepare for any unexpected events. Best of all, if misfortune doesn’t come your way you will be living debt-free sooner, which can open the door to other investment opportunities to help you build a stronger financial future.”
Mortgage Choice provides the following tips to make your mortgage easier and lower your monthly interest payments to your lender:
Tip #1: Cut your payments in half
This strategy has proven to be very effective in saving mortgage holders a lot of money over the years. You simply take your monthly mortgage repayment – say $2,000 – and cut it in half ($1,000), and then pay this amount fortnightly instead of monthly. “With monthly repayments of $2,000, you will pay $24,000 off your loan by year’s end,” Sheppard says. If you pay fortnightly, you can pay $26,000. This is done by paying half of the monthly repayment and making $1,000 payment every two weeks. There are 26 fortnights per year.
Tip #2: Round up
Your mortgage interest can be reduced by rounding up your home loan payments. A loan of $350,000 at 7% for 30 year terms is possible. If you increase your monthly repayments to $2329 and make $2,500 for five years, the loan will be paid about four years before due date. The interest rate will also be reduced by more $69,200.
Tip 3: Use extra funds
As a savings account, the offset account can be attached as an account to the home loan account. It can help to reduce interest charges on loans. Sheppard explains that a loan of $5,000 can be deposited into an offset account. This reduces loan term by approximately 14 months and reduces interest owed by roughly $33,856
Tip #4: Get a health check
Sheppard suggests that you examine your loan to determine whether you need the additional features you’re paying for. A mortgage broker can perform a home loan health evaluation. This will enable you to compare your loan with other lenders and determine if there are ways to save money.
This post was first published in September 2011 and formatted in June 2018.