Debbie Shankar - 2 Oct, 2015

How to Reduce Your Mortgage Costs

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Winter is gone, along with those financial blues. Now it’s time to embrace the warmth and turn your cold and tired home loan into one that’s hot and delivers savings now, and well into the future.

But, in order for your home loan to deliver, you’re going to need to look over your existing home loan, and identify where you can save. A mortgage broker can complete a Home Loan Health Check and review your current home loan and compare other home loan options on the market. Let’s look at how you can reduce your costs now.

1.  Compare your interest rate to others on the market – If you have a variable rate home loan that you took out years ago, then it’s highly likely that you have no idea what your current interest rate is. Now is the time to find out. You can do this by logging in to your home loan account online and checking your details, or by contacting your lender and asking them directly.

According to home loan comparison data, the average standard variable rate home loan on a $300,000 home over 30 years is 4.67 percent with monthly repayments around $1550. Fixed rate home loans, on the same loan amount, are averaging 4.46 percent with monthly repayments of $1512.If you’re paying more than this, then it’s time to look at alternatives.

2.  The offset account – Considered as a feature of a home loan, this little gem can shave thousands off the amount of interest you’ll pay on your home loan over its lifetime. The concept behind an offset account is it works the same as an everyday transaction account, except it’s linked directly to your home loan. The amount held in your offset account reduces your home loan principal by this figure so that you’re only paying interest on the balance. For instance, let’s say you have a $250,000 home loan and $30,000 in your offset account. This means that your lender will only charge you interest on $220,000.

3.  Fees and charges – Your home loan comes with a barrage of fees, many, of which, you don’t even think about. Typically home loan fees and charges include home loan application fees, redraw costs and exit fees, along with property valuation expenses. These all add-up and can cost you thousands over the term of your loan. In order to save on fees and charges, look critically at your existing home loan and then compare this to other home loans on the market. The comparison rate of the other home loan products typically includes any additional charges and fees that the loan incurs. If these comparison rates are better than your existing home loan, then ask your lender for a better deal. You’ll be surprised at how quickly they’ll be willing to discuss your home loan and your options. Your existing lender may even be willing to match a lower competitor, and if they don’t then it may be time to consider taking your business elsewhere, especially if you can save.

4.  Extra Money – If you’ve got a little extra cash, then before you rush off and spend it consider putting this on your home loan. If you’ve got a redraw facility attached to your loan you can always take the money out at a later date, but in the meantime it’s reduced your principal and cut the amount of interest that you’ll pay.

5.  Consider fixing your home loan – With the official cash rate sitting at 2 percent there are some ultra low fixed rate home loans on the market. The lowest rate on a $300,000 home loan over 30-years is 3.89 percent, with monthly repayments fixed at $1413. So if you’re staying in your home long-term and want budgeting certainty that saves you more than your existing home loan, then consider fixing. But before you do, just make sure you work out all of the costs, such as fees and charges. Otherwise you may be left out of pocket.

Is It Time to Refinance?

If after comparing your interest rate to others on the market and looking at your current fees and charges, you discover that you could be getting a much better deal elsewhere, then it may be time to consider refinancing. To do this, firstly discuss your options with your existing lender. They may be willing to make some changes to your existing loan, which will not require you to refinance. If your existing lender cannot help you, then look at your options in greater detail. Before you make a move though have your house valued by two real estate agents, this will allow you to know what your property is worth, and to calculate your loan-to-value ratio. If your loan-to-value ratio is more than 80 percent, then you may be asked to pay lenders mortgage insurance if you refinance. This can add thousands to the cost of your home loan.

Also consider your existing financial circumstances and how these may have changed since you took out your home loan. Are you in a better or worse off position financially? Are you earning more than you did when you first took out your home loan? Or do you have more dependents? You need to ask yourself these questions before you approach another lender as your financial position will dictate to whether or not you can secure a new home loan when you refinance. A mortgage broker can help you every step of the way and take the stress out of refinancing.

Want to know more about home loans? Then contact eChoice and find the right home loan for YOU today.

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