Laura Akhurst - 5 Jul, 2017

How to Reduce Your Mortgage Repayments

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Your mortgage is one of the largest financial commitment you’ll have, so it makes sense to pay down that debt quickly. This course of action will reduce your interest costs and will allow you to own your home sooner. Plus, it will reduce your financial stress and increase your cash flow.

So, how can you pay your house off faster?

1. Look Beyond Interest When Selecting a Loan

While interest is a central focal point when choosing a home loan, it shouldn’t be the only consideration. Other factors that you should be looking at include:

  • Application fees.  All financial institutions charge an application fee. However, some may be higher than others. Average application fees can be anywhere from $300 to $800 and these cover administration and loan set-up costs.
  • Valuation fees.  When you buy a home, your lender wants to know the property is worth the amount you’re looking to borrow. Thus, they’ll request a property valuation, which means they will send out a valuer to access your home. Valuations can cost up to $550 per property.
  • Legal and settlement fees.  A property lawyer (conveyancer) ensures all financials such as rates, water and emergency services, are fairly distributed. These services cost around $1200 to $1800 per property.
  • Rate lock costs.  It takes time to gain home loan approval. During this period, interest can change. Therefore, to secure the rate you discussed with your lender, you can pay a locking fee.
  • Lenders mortgage insurance (LMI).  Should you wish to borrow more than 80% of a property’s purchase price, then you may incur LMI. Such insurance adds thousands to the cost of your mortgage. Plus, it protects your lender against financial loss, not you, should you be unable to make repayments.
  • Early payout and discharge fees.  Paying your mortgage off before the full term, may incur an exit or discharge fee. Furthermore, if your mortgage is for a fixed term then break costs may apply. Consequently, make sure you ask about these charges to avoid any extra charges.

2. Avoid Going Directly to a Lender

When a broker hasn’t referred you to a lender they smile, as they pocket the commission a broker usually receives. Of course, there are many benefits associated with using a broker such as a greater selection of home loans and product choices. Brokers also deal with many lenders, sometimes 50 or more. Subsequently, they have access to hundreds of products.

In addition, brokers compare products for you so you can select the right one for you and your circumstances. They can also offer advice, help you through the application process and be there to answer any questions you have.

3. Pay More Than the Minimum Repayment

If your mortgage commitment is $300 a week, then arrange to pay $350. Sure, you’ll need to find an extra $50, but this can shave thousands off your interest and reduce your term. For instance, a $300,000 home loan over 25-years at 5.25% will cost $414,53 to service. But, if you pay an extra $50 off a week and increase your repayment to $464.53 weekly, then you’ll save yourself $52,939.78 in interest. Also, you’ll pay off your home sooner by four years and ten months.

4. Review Your Mortgage Frequently

Move beyond the ‘set and forget’ mindset when it comes to your mortgage. Instead, look at your rate of interest and home loan features. Then, compare your home loan to see if you can do better. If your rate is competitive and you’re using all of your features effectively, then stick with what you have. Nonetheless, if you find similar loans to yours that are cheaper, then may be able to get a better deal.

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