According to the REIV, the average Victorian homebuyer’s loan has grown to $283,000 which represents a 267% increase since 2001.
Australian families are generally able to borrow around 6.5 times their household income and with the recent interest rate rise and the threat of more to come, it is an opportune time to put your mortgage under the microscope.
Let’s look at the 3 ways to reduce the term and cost of your mortgage:
- Get a Cheaper Interest Rate
To illustrate the benefit of a mortgage rate reduction, a 0.7% reduction in rate would save you more than $33,000 over the term of a 25year, $250,000 mortgage. According to a recent survey, the average rate paid on variable rate loans is 7.78% per annum, not the standard variable rate advertised by most major banks of 8.32%. In most cases the standard variable rate is only there so that the big banks can discount it. It’s a great marketing strategy because it makes consumers feel like they’re getting a great deal.
It’s vitally important you choose the right home loan that suits your personal needs. If you want the option of paying off your loan sooner or want a redraw facility, then a fixed home loan is probably not for you. Most lenders also have some sort of ‘deferred establishment fee’ that is charged if the loan is repaid in full within a certain time frame (typically 45 years) so make sure you check the terms and conditions of your loan.
You should also be wary of ‘professional loan packages’ that offer a great rate and bonuses like ‘free’ credit cards. Most banks usually charge you a $300$400 annual fee for the privilege. The same interest rate discounts can be achieved through a basic home loan without any annual fees which means you are actually paying up to $400 per annum for a credit card. Before you sign on the dotted line for a loan we strongly recommend you speak to one of our affiliated mortgage brokers.
- Make more Regular Payments
It’s always surprising to learn how many people stick to monthly home loan repayments. By paying fortnightly you can save thousands of dollars simply because there are 26 fortnights in a year – the equivalent of 13 monthly repayments rather than 12. For borrowers who divide their monthly repayment by four and pay weekly, the savings are even higher.
- Make Early Extra Repayments
If you are in a position to make extra lump sum repayments on your mortgage you can make the greatest impact by making the payments early in the life of the loan. Every extra dollar you pay off early in the loan early generally means a reduction of the principal and therefore the total interest payable.
Where to Next? Simply bring in or fax your latest mortgage statement and we will put your mortgage under the microscope and calculate the potential savings from an interest rate reduction. Our affiliated mortgage brokers have access to a panel of over 30 lenders with hundreds of different loans and can identify the right loan for you. Call our office today to see if we can save you some money!