After an incredibly tough and volatile year for many, you might be worrying more than ever about your long-term financial position. One key area to see where you can save yourself some money over the years is on your home loan.
It’s likely one of the biggest expenses and stressors in your family’s yearly budget but can be tweaked if you’re strategic about it. That way, you’ll have more money available to invest and save elsewhere. Try multiple techniques to slash your total mortgage payments and save yourself thousands over the long term.
Make Extra Repayments
The simplest way to make a dent in your total home loan is to make more repayments than necessary. Whenever you have extra money available, make additional repayments into your mortgage account. This reduces the principal loan amount you owe, plus the length of the loan and, in turn, the amount of interest you’ll end up having to fork out over the life of the mortgage.
There are numerous ways to go about putting in extra. For example, round up payments each time you make them, rather than only contributing the minimum amount due. Plus, when you get lump sums throughout the year, such as a tax refund, annual work bonus, share dividends, or inheritance, consider putting this money into your mortgage account to save on interest.
Pay More Frequently Than Once Per Month
A related idea is to set up your mortgage so you pay more often, such as fortnightly rather than monthly. You might not think that this would make much of a difference, but it’s a strategy many people make to pay off their homes sooner and cut the final level of interest they have to cover.
Due to the way our calendar is set up, when you choose fortnightly payments, you end up putting in the equivalent of 13 months of loan deposits per year rather than the 12 normally made on a monthly payment basis. In turn, you accrue less compounded interested during the term of the loan. To indicate how this can really add up, consider the fact that, over a 30-year loan, this equates to paying off your mortgage approximately 2.5 years earlier.
Reduce the Loan Term
If you’ve started earning more money each year or simply want to be more frugal and think you can afford to pay out more money to your loan account monthly, it’s worth reducing the term of your mortgage. Paying it off more quickly means you don’t have to cover so much in interest expenses over the years. Talk to your lender about making this change and find out how much extra you’d have to pay to reduce your loan by five or ten years, for instance.
Refinance Your Loan
Another great way to cut your total home loan repayments is to refinance your mortgage altogether. You might have found a decent deal at the time you first got your loan approved, but is it still the best product for your needs? It’s wise to keep checking options on the market to see if you might be able to do better.
Ask your bank how long does it take to get a mortgage refinance and if they can offer a lower rate, consider switching between fixed and variable rate loans, and see if there are any new lenders with more competitive terms. Research loan rates online for an idea of what’s available, whether you need a Washington, DC mortgage or one in Los Angeles, Boston, Portland, or anywhere else in the country.
Plus, take a look and see if you currently have a mortgage product that includes extra features you don’t need or if you’re paying fees for things you really shouldn’t have to. Do keep in mind, though, that the charges to get out of a loan can be prohibitive, especially in the early days. Always check how much you’ll have to pay in exit fees and other costs to move from one mortgage to another to ensure it’s a financially smart move.
Downsize Your Home
Lastly, if you want to outlay less in home loan repayments over the years, consider if you really need to live in a property that’s as big as it is. Perhaps you don’t need as much space as you thought you did, or your children have left home. If so, you could sell your current property and downsize to a smaller, less expensive one, meaning you don’t require a mortgage level as high, either.
Having a big mortgage weighing on your mind can be tough, especially during recessions, pandemics, and other financially uncertain times. But if you can cut your repayment levels, this will give you more breathing room and help you save money long-term.