With interest rates continuing to rise, reducing your mortgage interest rate can be a great way to save money so you’re not out of pocket and can keep or invest more of what you earn.
Here’s a four step plan that may help you decrease your interest rate and reduce mortgage repayments.
Step 1: Negotiate a lower interest rate
If you have a mortgage with a variable interest rate, you can renegotiate your rate with your lender.
You want to sound confident when you speak to your lender. That means being armed with all the information you need before you pick up the phone.
Check your current interest rate and repayments, then compare it to similar loans elsewhere. If you find a better rate, ask your lender to match it or offer you a lower interest rate.
Reviewing fees
When reviewing your fees, look at the comparison rate. This shows the true cost of the loan once fees have been included.
In addition to the comparison rate, check the one off fees such as application fees, monthly fees and annual fees. You may also want to ask which ones can be waived.
Don’t forget to stay on top of what’s happening in the market so that if big changes are made to mortgage interest rates, you can jump on it. It’s the small changes you make now, that can have a huge impact over the lifetime of your mortgage.
Switching loans
If your lender is willing to lower your interest rate but that rate is still not competitive with other rates on the market, you may want to consider switching to another lender.
If you decide to change, make sure you consider all the pros and cons of refinancing. You should make sure the benefits outweigh any fees you could end up paying. This may include costs for closing your current mortgage and applying for another one.
Step 2: Commit to extra payments
Consider whether you can afford to pay more than your minimum repayments.
If you can, put in extra cash where possible, like a bonus or tax refund into your mortgage. This could save you thousands of dollars in interest and shorten the life of your loan.
Step 3: Consider an offset account
If you have a mortgage with a variable interest rate, an offset account maybe can be beneficial.
Like a savings or transaction account, you can use it for regular payments. The difference is it’s linked to your mortgage.
By having the money sitting in an offset account, it effectively reduces the amount you owe on your mortgage, so you end up paying less interest in the end.
For example, if you have a mortgage of $350,000 and you have an offset account with $10,000, you’ll only pay interest on a loan of $340,000.
Step 4: Pay off interest and principal
Paying off both the principal and interest on your mortgage, is another strategy to save money by removing your debt faster.
With an interest only loan, your repayments are covering the interest on the amount you borrowed but that’s it.
If you’re paying off the principal as well, you’re not only reducing the interest, but you’re also shortening the term of your loan.
Source: MLC