Nobody with a mortgage needs to be reminded that the home loan is the most expensive part of the typical family’s living costs today. Increasingly, they consume a huge percentage of the family budget. In some cities such as Sydney, Brisbane, Melbourne and Perth, as well as regional centres like the Gold Coast and Northern Rivers of NSW, home loan costs can be up to 40% or more of the family income.
Many people have the potential to save money on their home loans. For people stretched to the limits of their capacity and who may be feeling the stress and worry of not having enough money to meet the mortgage, any ideas on how to save money will be welcomed.
One of the most over-looked and easiest ways to save money is to make repayments more frequently. The vast majority of mortgages offer repayment schedules that are based on monthly repayments with interest calculated daily. A simple re-structure to making repayments fortnightly, can save significant amounts.
If you simply go online to your banks’ website and open up their mortgage calculator, you can play with the numbers. You will see how increasing the frequency of repayments will reduce the amount you are repaying. This is because your repayment is working for a longer period of time due to the daily calculation of interest payable.
Many people have a mortgage and yet still have funds sitting in a savings account or a transaction account that can be used more effectively. Most mortgage providers offer borrowers an offset account. This account can be used to deposit excess funds during the month or long term savings. It is simply a savings account linked to your loan.
Like all savings plans, it is most effective when funds are deposited on a direct debit basis at regular intervals, for example, out of wages or salary on a monthly basis.
The funds deposited act as an offset against the mortgage, hence reducing the interest amount charged for the period the savings are at work. Once you start this process you will find many opportunities to make use of the offset facility. Tax refund cheques are a common example. You may like the idea of going on a well earned splurge with the tax refund but the real benefit will come if the money is put to work as an offset against your mortgage.
Take advantage of the multitude of offers in the market and shop around. The home lending market is extremely dynamic and new offers and new providers are entering the market. Banks, non banks and credit unions are highly competitive, a fact which can offer an existing borrower opportunity to source a provider who can offer lower repayments.
It is possible that owner occupiers or investors who may have had loans for many years and who have not bothered to switch their loan or renegotiate, may be paying too much on their existing mortgage.
This path is not a straight line however; you need to check the fine print; you need to be aware of the costs incurred in switching loans. This can be a time to speak to a reliable mortgage broker to help you in your decision-making.