The cold, hard truth is this: you’re never going to get ahead financially if you continue paying off your mortgage the way you are now.
Banks are businesses, and their number one objective is to make money, so they’re unlikely to have your best interests at heart – in the sense that they want to maximise their profits.
However, it is possible to beat them at their own game, by employing these insider strategies that could save you big dollars…
1. Every little bit counts
Can you spare a little extra each week or fortnight, to channel into your mortgage?
Even seemingly tiny amounts can make a big difference over the life of your loan, thanks to the wonders of compound interest.
Take your coffee to work each day and use that spare $25 per week to bump up your mortgage payment or cancel the personal trainer and work out with a friend instead, saving $50 a week.
On a $500,000 loan with an interest rate of 4.00%, an extra $25 per week would see you save a huge $19,572 in interest and 18 months off the length of your loan. An extra $50 would increase your savings to $36,412, with your loan paid off in full almost 3 years earlier! You can see for yourself the difference extra repayments can make, by using this calculator.
2. Frequency matters
If you’re currently paying your mortgage monthly, simply switching to fortnightly repayments could save you a bomb. How?
Well, think about it – there are only 12 months in a year, but 26 fortnights, so by paying fortnightly, you’re sneaking in an extra payment every year. For example, if your current repayments are $2,500 per month, divide this by 2 and begin paying $1,250 each fortnight instead. At the end of the year, instead of paying $30,000 to the bank, you will have paid $32,500. That’s an extra $25,000 over 10 years, or $50,000 over 20 years – not to mention the tens of thousands of dollars you’ll save in interest over the life of the loan.
3. Offset your spare cash
An offset account can save you tonnes of interest, and all you need to do is park your salary and any savings in it until you need to spend it.
Every dollar you have in your offset reduces your total loan balance, and the interest payable on it, and this all adds up over the life of your loan. If your current loan doesn’t have an offset facility, think about refinancing to one that does, and enjoy the savings.
4. Score yourself a better rate
It’s unlikely that you’re currently paying the lowest possible interest rate on your loan – and the bank isn’t going to point this out to you unless you initiate the conversation!
Give them a call and ask for a better rate. The worst that can happen is that they say no, but if you ask the question, they’ll know that you’re getting restless with your loan and may be looking elsewhere.
Don’t be afraid to refinance if they don’t have anything to offer you, either; there will always be a competitor who is happy to steal you away from them!
5. Seek out other benefits and discounts
Many lenders offer discounted interest rates and fees to customers who package several products, such as home loans, credit cards and insurance, together.
If your bank doesn’t have a scheme like this, look elsewhere, or ask us for advice. You could be saving hundreds in account-keeping fees, racking up rewards points or paying less for your insurance, all of which adds up to a lot of money in the long run.
6. Be vigilant
If you signed up to a honeymoon offer or have a variable loan, don’t simply set and forget! Be on the front foot, ready to renegotiate or refinance if the conditions change and no longer suit your needs.
Many lenders lure customers in with great introductory rates, or special conditions that expire after a few years. Instead of staying with them once the gloss wears off, insist on a better deal – or take your business elsewhere.