On the other hand, did you know that you could potentially save thousands of dollars on mortgage payments and settle your debt more quickly by following a few simple strategies?
Make payments weekly or fortnightly
A survey by finder.com.au found that 40% of borrowers made more frequent payments, either weekly or fortnightly, rather than monthly.
More frequent payments could save borrowers more than $77,000 in interest payments on a $375,000 mortgage at 5.5% interest. Monthly repayments would be $2,129, and the total cost of the loan would be $766,515.
Meanwhile, fortnightly payments would save $77,819 in interest. Borrowers would also reduce the loan term by five years and one month.
Use a mortgage offset account
A mortgage offset account is another popular way of reducing interest payments, with a third of borrowers doing this. Such accounts link to your home loan in such a way that it reduces the amount of interest you have to pay.
“A savings offset account runs in conjunction with a residential loan, and the interest earned on the offset account is applied to reduce the interest payable on the loan,” said Steve Tovas from www.neomoney.com.au. “When you have an offset, you don’t earn interest on your savings. However, you are benefiting, as the interest on your savings is actually working to reduce the amount payable on the loan.”
There are generally two types of offset accounts: a 100% offset and a partial offset. “A 100% offset is where the interest rates earned and paid are the same,” Tovas said. “A partial offset is where the interest earned on the offset account is only a portion of the rate paid on the home loan.”
The better product is the 100% offset account because the interest on your savings is earned at the same interest rate as your mortgage.
Negotiate a cheaper interest rate
You should also consider negotiating a cheaper interest rate with an existing lender.
“Don’t be afraid to contact your lender and ask what they are prepared to do to strengthen your relationship with them,” said Mina Mavrogeorgis, regional director of the Maroubra branch of intouch Finance.
“You may be pleasantly surprised with their response…and if they can reduce your interest rate, then that’s a great win for you and it keeps you in touch with your financial strategy.”
Borrowers should also look beyond what the major banks and non-bank lenders are offering. Many less prominent lenders, like building societies and credit unions, offer lower interest rates and more attractive deals than what the mainstream lenders are offering.
