Your mortgage is one of the biggest financial commitments you’ll ever make—and it’s one that will last years.
Ill-informed decisions can easily cost you hundreds of thousands of dollars over the lifespan of your home loan. This translates to less money for savings, your children’s education, retirement, and living expenses.
Most borrowers are surprised to find out that a low interest rate is not the most significant factor in reducing the overall mortgage cost and payment period. The truth is, lenders avoid sharing many money-saving tips as they can earn bigger profits by lending you as much as possible and with fees as high as they can get away with.
If you want to be debt-free more quickly, then check out these tips:
- Review your home loan at least once a year.
Home loans generally become uncompetitive after a few years. With new products being added to the market regularly, it pays to do a review of your home loan at least once a year to determine if your current loan still meets your priorities. You may discover that there is a better product out there that would help you save on interest charges, gain access to better services, and increase your home loan amount.
- Overpay your mortgage.
Making payments weekly or fortnightly can help you clear your home loan much faster. This tactic can also save you thousands of dollars in interest charges.
Your lender and mortgage broker want you to stretch your home loan payments for as long as possible because they’ll be paid interest and trailing commission the entire time. In short, the longer it takes for you to settle your debt, the more money they’ll make.
Use the Mortgage Repayment Calculator to see how much you’ll save by making extra payments regularly.
- Don’t focus solely on interest rates.
The interest rate isn’t the only factor that influences the total cost of your home loan. In fact, going for the lender that offers the best initial interest rate doesn’t mean you’ll get a cheaper loan.
Interest rates can change soon after your loan starts, and you can quickly end up with a very expensive and uncompetitive rate. Moreover, there are additional fees that can make a loan more expensive than it seems.
Additional fees might include:
- application fees
- valuation fees
- establishment fees
- legal and settlement fees
- rate lock fees
- lenders mortgage insurance
- early payout fees
- discharge fees
In other words, if you want to objectively assess the overall cost of your loan, you’ll need to look at the bigger picture.
- Avoid going directly to a lender.
Lenders like it when you walk into their doors without being referred to by a broker, as they can pocket the commission they would normally have given to the broker.
If you deal directly with a bank, you won’t be able to ask a mortgage broker for more in-depth and comprehensive advice. Other lenders may provide loan products that are better suited to your finances and priorities, and you close yourself to these possibilities by going to just one lender.
This article provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such as it does not take into account your personal circumstances or needs. Professional advice should be sought prior to any action being taken in reliance on any of the information.