As an Australian homeowner, you are most likely feeling the immense pressure of meeting the monthly repayments of your mortgage. With major upheavals in the real estate market and successive cash rate hikes, many Australians are experiencing mortgage stress.
Fortunately, there are ways to reduce your mortgage repayments and alleviate some of that financial strain.
In this post, we’ll explore five effective strategies on how to reduce mortgage repayments and save money during the life of your loan. Whether you’re looking to refinance, negotiate with your lender, or reduce mortgage repayments, we’ve got you covered. So if you’re ready to ease your mortgage burden — and live the life you’ve always wanted — you HAVE to read this.
5 Proven mortgage reduction methods to ease the pain of increasing interest rates
1. Pay attention to your LVR (loan to value ratio)
If you think you’re paying more than you need to on your mortgage, that’s probably because you are not paying attention to your Loan to Value Ratio (LVR). Your LVR is the percentage of the property’s value that you owe on your mortgage.
If your property has increased in value over the years and you’ve paid off a good chunk of your loan, your LVR would have decreased. This means you could be eligible for a lower interest rate, potentially saving you thousands in interest payments.
Rates are often offered base on these LVR tiers: Greater than 90%, less than 90%, less than 80%, less than 70% and less than 60%. So if you don’t know your current LVR, you may not know what rate you should have. We recommend that you check your current LVR and see if you can negotiate a better rate with your lender to start reducing home loan.
2. Look into refinance cashback offer deals
Many lenders offer significant cashback rewards to win your business. But what is cashback? A cashback deal is a type of incentive offered by some lenders when you refinance your home loan. Essentially, it involves the lender giving you a lump sum of cash when you take out a new loan with them to refinance your existing home loan.
The amount of cash you receive can vary depending on the lender and the specific offer, but they typically range from $2,000 up to as high as $6,000 simply for moving your home loan to that new lender. The cashback offer is paid into your bank account after settlement of your new loan and is available for you to use as you please.
3. Avoid loyalty tax
Are you aware of the so-called ‘loyalty tax’ that many existing home loan customers fall victim to? This is when lenders charge their existing customers more than new customers, simply for staying loyal to them. Shockingly, this can add up to an extra few hundred dollars per month, which can significantly impact your monthly repayments on mortgage.
To avoid being hit by the loyalty tax, shop around for the best deals and compare offers from different lenders. Don’t assume that your existing lender will automatically offer you a competitive rate. Often, you’ll need to negotiate or switch to a new lender to get the best deal.
It’s also important to review your home loan regularly – ideally every 1-2 years – to ensure that you’re still getting a good deal and not paying more than you need to. By being proactive and shopping around, you can avoid the loyalty tax and potentially save thousands of dollars from your monthly repayments over the life of your loan.
4. Change the frequency of your monthly repayments
Another way to reduce the burden is to consider changing the frequency of your repayments. While some lenders may suggest going with fortnightly or weekly repayments to pay off your loan quicker, this isn’t always the best option for those struggling with their repayments. In fact, switching back to monthly repayments or requesting an actual repayment method could free up some much-needed cashflow.
For example, if you’re currently making $600 per week repayments on an accelerated method, switching to the actual method could result in an extra $46 per week in your pocket. While this won’t make a huge difference in the long run, it can be a helpful short-term strategy for those experiencing financial stress.
5. Debt consolidation to reduce loans
By consolidating your other debts (phone bills, credit card, etc) into your home loan, you can decrease your weekly overall repayments and simplify your finances.
However, before making the decision to consolidate your debts, it’s important to consider the loan term repayments and any fees or charges associated with the process. You’ll also need to ensure that your loan to value ratio is suitable for consolidation and that you’re not putting your home at risk.
If done correctly, debt consolidation can be an effective way to alleviate financial stress and reduce your overall repayments. It’s worth speaking to a financial advisor or mortgage broker to discuss your options and ensure that you’re making the best decision for your individual circumstances.
Stop overpaying on your monthly repayments with Q Financial
Are you ready to own your home quicker and relieve yourself from years of serious mortgage pains? Don’t hesitate to call me on my mobile number on 0407577792 or book a scheduled call with me and my team by clicking a button below.
