When you’re taking out a mortgage, you’re usually making the biggest financial commitment of your life. Here are a few hacks that could potentially save you thousands of dollars.
Negotiate a Lower Interest Rate
When it comes to getting the best interest rate, do your homework. You should always shop around with banks and non-bank lenders to make sure you’re getting the very best deal on your interest rate and home loan.
Find out what a competitive rate is and be sure to check what your lender is offering to new customers as an introductory rate. Let the bank know you could be getting a better deal elsewhere and you’ll switch to another lender if they won’t budge. You’ve got nothing to lose by asking them for a lower rate and if you’ve got facts to back you up, they’re more likely to take you seriously.
There are many online home loan comparison websites available for you to use, or alternatively, a mortgage broker can make the whole home loan process much easier because they can compare hundreds of loans with multiple lenders – saving you time and money.
Home Loan Packages and the Annual Fee
Home loan packages allow you to apply all the extras to your loan – including a redraw facility, offset account, credit card and the option to bundle other financial products. Interest rates on home loan packages tend to be lower than a standard mortgage.
A cost generally applies to home loan packages and is paid as a single annual fee rather than a monthly account keeping fee, weigh up the costs vs savings before
Fixed or Variable Home Loan?
When it comes to fixed and variable loans, there are pros and cons of both types, it is completely up to the borrower and their individual requirements.
- Variable loans – The interest rates on variable loans are determined by lenders and can change at any time. They often move up or down in line with the Reserve Bank of Australia’s official cash rate and lender movements and other market fluctuations. The lack of certainty in variable rates can be concerning for some. Under variable rates, customers can pay off their loan as quickly as they want, without penalty.
- Fixed rate loans– If you have a fixed interest rate for a specific term, usually between one and five years, repayments will remain consistent over this period. Fixed rate loans can give borrowers budgeting
reassurance,since there’s a level of protection from rising rates. However, if variable rates drop, you could end up paying more than a variable rate. Plus, extra repayments or paying off the loan before the end of term, are usually subject to break fees though some lenders offer this benefit as well. Also, features such as offset and redraw are typically not available.
Benefits of Splitting Your Home Loan Between Fixed and Variable
Split rate loans can give borrowers the best of both variable and fixed rate loans. Split rate mortgages could offer you some protection against rate rises, without excluding loan features, and may be attractive to buyers looking for security and flexibility.
Rates fluctuate all the time and it’s normal for rates to increase, particularly if you started on a very low introductory offer. The best thing to do is some market research to see if your current rate could be improved by switching lenders.
The Best Frequency to Pay Your Home Loan
A simple change like increasing the frequency of your repayments can have a big impact on your mortgage over time, by decreasing the amount of interest you pay on your loan over its lifetime. For example, on a $500,000 loan with an interest rate of five percent, changing your repayments from monthly to fortnightly could save you close to $86,000 over the loan term. This is because there will be 13 monthly repayments (a year has 26 fortnights), rather than 12 repayments.
It’s also easy to change the payment frequency. Speak to your bank, lender or mortgage broker and they’ll let you know how much your new payments will be and when your payments should be made.
The need for an offset account depends on your priorities. An offset account on your loan is another way to potentially decrease the amount of interest you pay as you can transfer your savings into this account rather than keeping your savings in a separate account. This will mean you are charged interest on the current loan balance minus the amount of money in your offset account – potentially saving thousands of dollars over your loan’s lifetime.
How a Mortgage Broker Can Help You Get a Better Deal on Your Home Loan
Once your broker has used their expertise to round up the best home loan deals from a wide variety of lenders based on your circumstances and requirements, they can explain each option, ultimately helping you decide which is best suited to your needs. They’ll also negotiate directly with the lender on your behalf, do the paperwork and help to get your application through as quickly as possible.
The service provided by a mortgage broker continues well beyond your settlement date. Your mortgage broker will keep an eye on interest rates to make sure you’re still getting the best deal for the lifetime of your loan, and their service usually comes at no cost to the borrower.
If you’d like to discuss your circumstances further, contact me today.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.