Refinance to a lower interest rate

Despite rock-bottom rates, many creditworthy Australians have not yet refinanced. And that’s a shame: Borrowers who refinance can lower their rate by as much as 1% and save substantially. For a $500,000 home loan, that could translate to savings of about $89,234 in interest payments over 30 years, which means an extra $2,974 in your pocket each year. To calculate how much you could save, use our Complete Loan Comparison Calculator.

If you plan on staying in your home for at least three more years and your mortgage is at least $300,000, with an interest rate of 4.50 percent or higher, then you seriously need to consider refinancing. The key is to find an experienced mortgage broker who will do all the research and hard work for you. They are privy to many special deals that are not available to the bank branches. Some of the specials the banks offer is up to $1,500 cash back for refinancing customers. If you can reduce your current interest rate, go ahead and refinance.

When researching for an experienced mortgage broker, make sure they are a member of the Finance Brokers Association of Australia and that they have their appropriate qualifications to give credit advice. All mortgage brokers must give you a credit guide and privacy policy which states their Australian Credit Licence number and credit representative number.

Refinance to shorten your loan’s time frame

It’s becoming increasingly popular for home owners, even those on tight budgets to refinance their 30 year mortgages to 20 or even 15 year ones. Today’s low rates allow you to do this while keeping your monthly payment fairly close to the current amount. Say you’ve been making payments on a 30 year at 5.5 percent interest rate mortgage of $500,000. If you refinance to a 20 year at 4 percent for example, your payments will increase by less than $200 a month. Yet you would pay off the loan 10 years earlier, build equity faster, and save an astonishing $294,844 in interest!

Make a lump-sum payment

Did you receive a tax refund? An inheritance? Or come across a small stash of cash? Consider applying some or all of this money to your mortgage. This is one of the best strategies you can employ, because you’re not required to make a higher monthly payment and you didn’t count on having the money in the first place, so you won’t miss it.  Making a single $5,000 payment on, say, a 30-year 4 percent interest rate mortgage of $400,000 at the 5 year mark would save a home owner more than $8,432 in interest and reduce the repayment term by 7 months.

Take note: Make sure you do not pay this into a fixed rate mortgage as the lender could charge you a penalty for extra repayments. This is when you need an experienced mortgage broker to structure your mortgages accordingly. Ask the broker if there is a lender who has a 100% offset account linked to the fixed loan – in this way you never have to pay a penalty for any extra repayments. Get more info on this topic here.

Switch to bi-weekly payments

Simply by making half your monthly payment every two weeks, you will chop off almost six years off a 30-year mortgage.

Not to mention that you’ll save tens of thousands of dollars over the life of the loan. All you have to do is contact your lender to change your payment schedule (be prepared you to pay a fee depending on what type of mortgage you have). Remember that twice a year, you’ll be making three payments a month instead of two, so be sure that there are enough funds in your bank account.

Round up your payment

Every little bit—even if it’s just $20 or $50 a month—that you pay toward your principal is less that you’ll ultimately pay in interest. For instance, maybe you have a monthly mortgage payment of $954.83. If you round up the payment to $1,000 by putting in an extra $45.17, you’ll pay off your debt two years and five months early. Use our extra repayment calculator to calculate your savings. This is a great option for anybody with a little additional cash, especially someone who has already refinanced or who doesn’t qualify for refinancing.

About the Author

Sue Hayter

Sue's service commitment is fantastic. At Trusted Mortgage Broker we work with our clients to ensure they understand their options, know exactly how much they can borrow and ensure they choose the right home loan and the right lender that is not unsuitable to their individual needs.

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