In today's economic climate, Australians are feeling the pinch of rising living costs. Interest rate hikes over the past few years have pushed variable home loan rates to levels not seen in decades. As a result, many homeowners are facing higher repayments, especially those transitioning from fixed-rate loans. However, Aussie homeowners are known for their resilience.
Here are ten tips to help you optimise your home loan, reduce interest, and get you through the tough times without having to sell your property.
1. Consolidate your debt
Interest rates on home loans are much lower than those on credit cards or personal loans. By consolidating your higher-interest debts into your home loan, you can save on overall interest payments. This strategy simplifies your finances and reduces the number of repayments you need to manage.
2. Utilise an offset account
Linking an offset account to your home loan can significantly reduce the interest you pay. The balance in this account offsets your mortgage balance, meaning you pay interest only on the difference if you have an interest only account. If your home loan is structured as principal and interest, your repayment will remain the same, but the portion of interest you’re paying will be reduced, therefore you’ll be paying off more of the principal and reduce your loan term. Depending on the lender and product you’ve chosen, you can also use multiple offset accounts for different savings goals, such as holidays, renovations, or everyday expenses if you still want to set budget targets.
3. Make lump sum payments
Whenever possible, make lump sum payments on your mortgage. These payments go directly towards reducing your principal, which in turn reduces the interest you will pay over the remaining term of the loan. Consider using tax refunds, bonuses, or other windfalls for this purpose. This is particularly helpful if you have a redraw facility (see tip number 4).
4. Take advantage of your redraw facility
Many home loans offer a redraw facility, allowing you to access any extra repayments you've made. This can be a useful resource for unexpected expenses. Just remember that redrawing these funds can extend the life of your loan, increasing the total interest paid over time.
“Refinancing your home loan to extend the term back to 30 years can significantly reduce your mortgage repayments.
This approach is a better alternative to selling your property and losing the asset altogether.”
5. Work with a proactive mortgage broker
Working with a proactive mortgage broker like Mint Equity can be highly beneficial. The team at Mint Equity automatically reviews and reprices your interest rate every six months, requesting discounts proactively. This is particularly helpful for first home buyers who haven’t had to deal with a mortgage renegotiation before. If you go directly to the bank, the bank will never discount your interest rate unless you ask (and that’s quite a process to go through directly). Therefore, partnering with Mint Equity ensures you're always getting the best possible rate without the hassle.
6. Change your repayment frequency
Switching from monthly to fortnightly repayments can make a big difference in the amount of interest you pay over the life of your loan. Since there are 26 fortnights in a year, this method effectively results in extra repayments each year, reducing your principal faster.
7. Consider refinancing to extend your loan term
Refinancing your home loan to extend the term back to 30 years can significantly reduce your mortgage repayments. While this is not an ideal long-term strategy, reducing repayments is crucial for surviving a cost of living crisis and higher interest rates. When financial conditions improve, you can increase your repayments to pay down the principal faster, thereby reducing the overall loan term. This approach is a better alternative to selling your property and losing the asset altogether.
8. Refinance to a different lender with lower interest rates
If you find a lower interest rate with another lender that is higher than your current interest rate, it's worth discussing the option of refinancing with an experienced mortgage broker like Mint Equity. Many lenders are willing to negotiate to keep your business and we are able to contact your current lender first to reprice your interest rate, even if you aren’t an existing client of Mint Equity. If you aren’t happy with your bank’s interest rate, we can investigate refinance options for you.
9. Change your repayments to principal and interest
Interest only loans attract a higher interest rate than principal and interest repayments, so the interest only product your currently on might actually be costing you more. In addition to a lower interest rate, paying down the principal reduces your outstanding loan balance, thereby lowering the interest charged over time.
10. Review your loan regularly
Regularly reviewing your home loan can ensure it continues to meet your financial needs. Interest rates and financial products change over time, and a loan that was competitive a few years ago might not be the best option now. Conduct annual reviews or speak with a mortgage broker at Mint Equity to ensure you’re always getting the best deal.
In these challenging times, optimising your home loan can provide significant financial relief and remove the requirements of needing to sell the property. Implementing these strategies can help you save on interest, reduce your loan term, and better manage your finances. For personalised advice and assistance, contact our experienced mortgage brokers at Mint Equity, who can guide you through the process and help you make the most of your home loan.