Due to the negative effects of an uncertain economy and the ever rising living costs, the majority of people are forever looking for the best possible ways to trim their budget. To a large majority of them, the best way to save some money is to cut down on their regular mortgage expenses, and for a good reason. Mortgage repayment is one of the biggest expenses in a majority of households.
For example, an average $340 000 home loan snatches away more than $2 000 from a homeowner’s bank account each month. In this case, a 25-year mortgage generate interests in the range of approximately $400 000 in the course of the loan repayment duration. To get accurate figures, it is recommended that you utilize a reliable mortgage calculator.
How do you reduce the interests on your home loan?
With several small but strategic changes on how you manage your home loan, you can basically decrease the amount of interests and also cut down the overall term of the mortgage. For example, if your normal monthly repayments are increased by any amount above the set minimum, this has the effect of reducing the principal loan amount owed. This decreases the interest amount paid over the loan’s lifetime, and also its term. In actual sense, this creates a financial safeguard that can be used to fix your financial state of affairs in event of unanticipated changes. With this in mind, here are some tips to help reduce your mortgage interests, and thereon its overall term.
Start by getting a mortgage health check
Mortgage experts recommend reviewing your current home loan so as to decide whether all the features you may be paying a premium for are required. You should then compare your current loan against the others in the market so as to see your position. The best way to do a mortgage health check is through a reliable mortgage broker. That way, you are then able to determine whether you can save money by negotiating a better loan repayment deal with your present your lender. Having done this check, you are then able to decide whether to switch lenders so as to get the best possible home loan repayment deal.
Take advantage of the additional capital
You can opt to have an offset account attached to your mortgage repayment account. This kind of an account acts as a convenient savings account and whose effects are to significantly reduce the interest that accumulates on the loan’s principal. If for instance you deposit $5 500 in a full offset account from the first day, the loan’s term will be reduced by several months. The interest owed also gets decreased by noteworthy amounts in the long run.
Rounding up your mortgage repayment amounts to small amounts
If your mortgage repayment amounts are rounded, even by a seemingly tiny amount, a huge dent on the overall loan interest bill is made. For instance, if you took a loan of let’s say $300 000 at seven percent over thirty years, by having the monthly repayments of around $2 300 rounded up to $2 500 at 5 years, you are able to have the entire loan amount repaid more or less in four years time. The interest owed in this case get decreased by approximately $69 000.
Reduce your monthly payments by half
Cutting your normal monthly payments in half is a tried and proven strategy that has been saving home loan holders huge amounts of money for years now. For example, take a monthly home loan repayment amount of $3 000, and cut it in half, and then pay $1 500 fortnightly rather than monthly. With normal payments of $3 000, you will pay $36 000 off your loan by the end of the year. Nevertheless, by paying fortnightly, you will be making repayments of $1 5 00 every two weeks, meaning you will pay $39 000 as there are twenty six fortnights in a year.