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10 Ways to Reduce Mortgage Repayments

As mortgage brokers, one of the most common questions we are asked is: “How can I reduce mortgage payments?

So we sat down and distilled what we do into this guide, “10 ways to reduce mortgage repayments“.

Your mortgage consists of:

Reduce mortgage payments overall by paying more in today

  • principal – the amount you borrowed to buy your home
  • interest – the amount you pay your lender and
  • fees for arranging and having the mortgage facility

The interest on a mortgage is substantial because you are borrowing over such long periods of time.

For example a standard variable 25 year loan of $350,000 at 6.25% interest would cost $692,652.85 – with nearly half the total cost being interest.

To see the cost of your home loan use this Home Loan Calculator.

To really slash years off your mortgage, you need to minimise interest in three ways:

  • Pay a lower interest rate (rate)
  • Minimise your loan balance daily (balance)
  • Borrow over a shorter period (duration)

There are a number of strategies to reduce mortgage repayments by minimising the rate, balance and duration. The key is to find the right mix of strategies which best fit your circumstances.

10 Ways to Reduce Mortgage Repayments

Rate (and Fee) Strategies

    1. Consolidate high interest personal debt into your variable loan within your mortgage AND continue to make those high personal repayments. You should aim to clear the personal debt off within 1 to 5 years. This is great for car loans and credit card debt where the interest rate can be over 9% compared to a mortgage rate currently around 4%.
    2. Take advantage of lenders’ discounts to the base rate e.g. professional occupation discount, lender packages, multiple accounts discounts and introductory (honeymoon) rates. If you choose a honeymoon rate you must check you can afford the repayments once the introductory period ends.
    3. Fix a proportion of your loan when rates are low and expected to rise. Still have a variable part of your loan to pay any windfalls into (to get your loan balance down) and to give you a buffer in case of any unexpected expense.
    4. Don’t pay lenders mortgage insurance (LMI) if you can avoid it. LMI is a non-refundable one off  fee added to your mortgage if you don’t have a 20% home deposit. LMI is there to protect the lender NOT you so there is no benefit of you of having this expensive cover.
    5. Refinance for a better overall deal. To get ahead on your mortgage you want a significant saving on your interest rate with a package suited to your life style and circumstances without paying a fortune in fees.
      Despite a surge in smaller lenders offering mortgage rates under 4.00%, borrowers are wasting $17 million a day by sticking with big bank lenders instead of switching to a cheaper home loan, according to a study by Mozo1. All lenders – banks, building societies and credit unions – operate under the same laws, rules and regulations for credit transactions in Australia. When refinancing appraise a number of lenders – a good way to do this is to talk to a reputable mortgage broker for a free no obligation consultation.

    Balance Strategies

      1. Pay windfalls or savings into your mortgage rather than into a lower interest savings account. Choose an account with no withdrawal fee if you need to access that money later.
      2. Get an offset account or revolving line of credit:
        With an offset account, any amount in your savings account is offset against your mortgage balance daily so your interest is charged on a smaller balance. Use the offset calculator to see how much you could save with an offset account.
        Revolving line of credit account – similar principle to an offset account. The line of credit (LOC) allows you to borrow to a pre-set ceiling. A LOC is great where you want flexibility e.g. to undertake major renovations without needing to arrange a new home loan. You need to be very disciplined to continue to pay off your line of credit account as many lenders require interest only repayments for the first 10 years which means that you have to significantly increase your payments later in the loan term and you will pay more in total. As they are riskier, lines of credit often:

        • have higher rates or ongoing fees
        • approval may be more difficult
        • they often offer a lower LVR amount, and
        • are usually not available with mortgage insurance.

          Reduce mortgage repayments with an offset account

          See how much you can save with an offset account

    Duration Strategies

      1. Finance over the shortest loan period you can comfortably afford – you pay considerably more interest on a 30 year loan over a 25 year loan. Bear in mind that interest rates are at historic lows so that they are going to increase over a 20+ year period. You need to know how comfortable you would be at making repayments if interest rates were at 6% to 9% (more typical long term levels).
      2. Shorten your loan period without refinancing. Use the calculator to find out the monthly repayments needed to pay your mortgage off a few years earlier. Make payments at this higher level. This will build up a buffer should you need to reduce mortgage repayments later e.g. because of redundancy or for a big ticket expense like a wedding.
      3. Make loan payments fortnightly, or weekly if you can. As interest is charged daily the effect of changing from monthly to weekly payments is considerable over the full loan period. It is best to set up a direct debit for your mortgage payments to synchronise with your salary so that your mortgage is always covered and not spent elsewhere. Furthermore, when changing over to fortnightly loan payments divide your monthly loan payments in two and you will end up paying another month off your mortgage each year.

    As you can see there are a number of ways to reduce mortgage repayments. Some you can adopt straight away and others will need the help of professional. The most important thing is to just get started as every dollar extra you put into your mortgage now could save you up to two dollars in the long run.

    1 Mozo Media Release 30/10/15

    This article was written by Andrew Maurer and Janine Leafe, accredited and licensed mortgage brokers at Approved Financial Planners. If you are in Perth and want a free no obligation chat about reducing your mortgage repayments call us on 6462 0888.

  1. This information is general in nature and should not be relied upon without financial advice tailored to your personal circumstances. Please refer to the Product Disclosure Statement before you purchase any financial product.

Survey Says: 70% of Property Investors Use a Home Loan Broker

Why do so many property investors use a home loan broker? Read further.

Recently, the Property Investment Professionals of Australia (PIPA) surveyed 800 property investors in conjunction with the magazine Smart Property Investment. More than 70% said that they use the services of a home loan broker. In sister magazine The Advisor, Ben Kingsley, who is the Chair of PIPA, shared a broker’s view of why so many property investors use mortgage brokers.

Why Property Investors Use Home Loan Brokers

Engagement

Many officers in banks or other lending institutions don’t have the time to “go the extra mile” for customers due to heavy workloads and limited selection of credit products. Mortgage brokers, on the other hand, have plenty of time and specialise in finding a custom solution for each individual based on their financial situation, goals and ability to meet mortgage repayments.

Brokers Provide More Access

A home loan broker has access to a lot more credit products than any single lender, because they use multiple lenders. This gives us the flexibility to find a loan that is tailored to your situation. We also help you with your paperwork because we know that it may be the difference between obtaining the right loan and being turned down.

Basically, you fill out your paperwork once and we send it to the lenders we deem appropriate, saving you a lot of running around.

Holistic Approach

At Approved Financial Planners, we offer a full range of financial planning services and insurance protection, as well as home loans, in the Perth area. It is much more efficient for you to have all of these services under one roof. It ensures that you don’t ever run into a situation where one aspect of your financial plan is working against another, because the “left hand” always knows what the “right hand” is doing.

Strategy

When an investor works with a home loan broker on a regular basis, the broker becomes more adept at tailoring the credit product around the investor’s purchase and investment strategy. As the investor grows, his or her needs change. A mortgage broker is right there to adjust credit products as the investor grows.

Before you purchase your next investment property, call Approved Financial Planners and talk to a home loan broker: (08) 6462 0888.

Get It Right by Choosing the Right Mortgage Broker for Your Needs

Many Australians think that they can find a mortgage with the best rates and terms for their situation by going to their bank or preferred lender. On occasion, your lender will actually have the best mortgage for your situation. But the odds are that they won’t.

Look at the situation mathematically. If a mortgage broker has access to more than twenty different lenders and you are seeing one lender, who is most likely to find the terms and rates that are best for you?

Choosing the Right Mortgage Broker

Why You Should Choose Your Mortgage Broker Carefully

Finding the right mortgage isn’t easy. Lenders often vacillate between strict guidelines and borrower-friendly standards. Some lenders use tactics that can not only cost you money, but can compromise your standard of living and affect your ability to obtain future loans.

Some mortgage brokers do things the right way. They know their market like the back of their hands and do their due diligence in the beginning with their clients, obtaining exactly the information they need to figure out which lenders will be appropriate for any given client. Then, they will apply only to those lenders.

Other mortgage brokers obtain basic information and then use the “shotgun approach,” sending loan applications to every lender on their roster. If you get turned down by a few of them, it can damage your credit score. In addition, the wrong mortgage broker is less likely to find the best product for you. This can cost you thousands of dollars over the full term of a home loan.

In other words, you don’t want just any mortgage broker; you want a great mortgage broker who will do their homework and find the best loan for you.

Qualities of a Great Mortgage Broker

Luckily, great mortgage brokers display two qualities that make them easy to spot if you know what you are looking for. The first quality you want to see is a proven track record for integrity. The second is a proven track record of success.

Integrity

Integrity is important in any business person, but especially in a mortgage broker. You want a broker who has developed an honourable reputation in the mortgage business. If you can’t trust your mortgage broker, don’t do business with them.

For example, many mortgage brokers will quote you rates without first obtaining sufficient information from you.
Some brokers want to take minimal information and pull your credit shortly after you walk in the door or call them on the phone. This is a sure sign that they are taking shortcuts, which never bodes well in the lending business. Some brokers will tell you everything that you want to hear, exactly as you want to hear it. If it’s too good to be true, it’s too good to be true.

Some brokers will ask you for money up front. This should raise a giant red flag. Most reputable mortgage brokers are paid by the lenders and have no reason to collect money from you at all.

If your mortgage broker does any of the things mentioned above, there is a very good chance that they are not the kind of broker you are looking for.

So, how can you find yourself a reputable mortgage broker? First, make sure they are accredited. Next, use Internet search engines such as Google to get an idea of their reputation.

The most reliable indicator, though, is how they treat you. You want a mortgage broker who is going to take the time to learn about you and your financial situation before making any promises or giving any advice. They want to know your goals and your resources so that they can help you make the most out of your situation. Basically, they care.

Success

A successful broker is going to have a wealth of experience in “closing the deal” for his or her clients. Along the way, they will have amassed a lot of knowledge. This presents an opportunity for you to accurately gauge your broker’s level of talent and knowledge by asking questions.

Find out how long they have been in the business. Ask how many mortgages they have obtained for people like you. Ask some general and some specific questions and see how quickly and easily they respond.

Call Us

At Approved Financial Planners, we have mortgage brokers with track records of integrity and success. Call us for more information: (08) 6462 0888.