The past 12 months have been a challenge for mortgage holders, particularly those with variable home loans. For 10 months in a row, the RBA increased interest rates to try and stem the rise of inflation. It was the fastest tightening cycle by the RBA since the 1980s, and it has meant that many households are struggling to find the extra money to make their home loan repayments every month.
Many mortgage holders on variable rates think they have “missed the boat” when it comes to saving money on their repayments. This is often not the case with several options available to help reduce home loan repayments.
Here are some options:
1. Ask for an interest rate review
If you are a good borrower who has never missed a repayment on your loan, you are in a strong position to ask for an interest rate review. It is simply a case of if you don’t ask, you don’t get, and lenders want to keep good borrowers happy, particularly in a market of rising interest rates. The process of asking for a rate review is also quite simple. It doesn’t require a refinancing application; just ask your mortgage broker to submit a request on your behalf. You might be surprised how much you can save, and you will wonder why you didn’t ask sooner.
2. Refinance your home loan
If you’ve been paying off the principal of your home for many years, you can consider refinancing your home loan to get a lower interest rate.
By doing so, you can reduce your monthly repayments and save a significant amount of money over the life of the loan. Your broker can help you compare different lenders and their interest rates before making a decision.
3. Make additional repayments off the principal, no matter how small
If your financial situation allows, try to make extra repayments towards the principle of your home loan. Do this by paying a little extra into an offset account or directly off the principle of your loan. By paying more than the minimum required amount, you can reduce the principal faster and save on interest payments.
4. Use an offset account if you don’t already
An offset account is a transaction account linked to your home loan. The money in the offset account is offset against your loan balance, reducing the amount of interest you pay. By keeping your savings in an offset account, you can save on interest while still having access to your funds if you need them.
5. Consider a split loan:
A split loan allows you to divide your home loan into two portions, one with a fixed interest rate and the other with a variable interest rate. This gives you the advantage of stability with the fixed portion and flexibility with the variable portion. You can save money by taking advantage of any interest rate drops on the variable portion.
The important thing to do above everything else is to review your home loan regularly. At Avenyou, we review our client’ home loans every 12 months to make sure our clients are getting the best deal, and their loan suits their requirements.
Remember, it’s always a good idea to seek professional financial advice before making any major decisions regarding your home loan.