How can I reduce my mortgage repayments?

We’ve compiled 6 tips to help reduce your monthly
mortgage repayments 

20 May 2022|3 minute read

woman sitting at laptop

For many Australians, a large portion of their monthly budget will go toward home loan repayments.

With property prices being high across most of the country, repayments tend to follow suit. So, it’s important to find ways to reduce the cost of your home loan repayments where possible.

One of the best ways to reduce the size of your home loan repayments is to reduce how much interest you are charged.

In this article, we’ll provide 6 ways to pay less home loan interest and trim down your monthly repayments.

1. Ask your lender for a lower interest rate

An obvious way to reduce how much you spend on your monthly mortgage repayments is to get a lower interest rate.

Sometimes the first step to lowering your interest rate is to simply ask your lender, especially if you know they have lower rates on offer.

You can ask them to match your rate to the lower rate new customers are offered.

If you have a positive history of being a responsible borrower, your request may be granted.

2. Refinance with a new lender

Sometimes your current lender won’t budge on your interest rate. If this is the case, it may be worth looking at other lenders.

Do your research and figure out if there are lenders who are offering lower interest rates. Weigh up the costs associated with refinancing and if you believe it’ll be worthwhile, it may be time to switch lenders.

Refinancing has many purposes beyond reducing interest rates. Here are some other reasons to consider refinancing:

  • To open an offset account or redraw facility

  • To switch from a variable interest rate to a fixed interest rate, or vice versa

  • To consolidate debt from credit cards, personal or car loans

  • To switch to a lender that offers better customer service or loan terms

  • To tap into your home equity.

Refinancing can come with some additional costs, so it’s always a good idea to weigh up these costs with the potential benefits to determine whether it’s worth it.

Remember to consider the home loan as a whole product, and don’t just focus on the interest rate.

3. Save interest by opening an offset account

An offset account operates like a bank account that is linked to your home loan balance. The money in this account offsets your home loan amount, so that you are charged less interest overall.

You can get an offset account when you refinance, or you can ask your lender about opening one.

For example, say you have a $400,000 home loan with $30,000 in your offset account. You’ll only pay interest on the first $370,000 of your home loan.

This will see your home loan principal and interest repayments drop, so long as you keep enough money in your offset.

Most offset accounts have a monthly or annual fee, so it’s important to calculate whether your interest savings will outweigh the cost.

If you have a fixed rate home loan, you may not be able to get an offset account. Some lenders still offer offset accounts to fixed interest rate borrowers but there are usually restrictions in place.

4. Make extra home loan repayments

By making extra repayments on your home loan, you’ll pay off your loan faster and save on interest over the life of your loan.

Since you’ll owe less on your home loan, you won’t be required to pay as much interest and your interest repayments will shrink over time.

Plus, if you ever need to access your additional repayments, you can tap into them by opening a redraw facility.

Similar to offset accounts, fixed rate borrowers generally can’t make unlimited extra repayments. If you violate your home loan terms by making extra repayments, you may be charged break fees.

Want to know how making extra repayments can help shave years off your home loan? Try out Aussie’s extra repayments calculator.

5. Switch to interest only repayments

There are two ways to make home loan repayments:

  1. Principal and interest (P&I): most borrowers will make P&I repayments which pay down the loan amount (or principal), as well as the interest that accrues on top

  2. Interest only: with interest only repayments, you don’t pay down your principal amount for a specific period of time (usually 1-5 years) and instead only make interest repayments.

If you switch to only making interest repayments, your monthly repayment amount will drop. However, this can be risky and you’ll have to be prepared to make higher repayments once your interest only period ends.

In general, the interest only approach is more suitable for experienced property investors. This is because they can be used strategically and have tax benefits for investors.

If you’re thinking about switching to making interest only repayments, it’s a good idea to speak to a financial advisor or mortgage broker.

6. Find a low-fee home loan

While some lenders will charge an arm and a leg in fees, others don’t.

Not all lenders charge monthly or annual service fees, and many lenders don’t charge application or loan establishment fees.

So, if you think you’re paying too much in fees, it may be smart to see if you can find a home loan with fewer or lower fees.

Remember that some lenders will make up for the lack of fees by charging a higher interest rate.

If you’d like to know more about your refinancing options or figure out if you can lower your mortgage repayments, get in touch with your local Aussie Broker today.

Book a chat with an Aussie Broker

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