7 Tips to Get On Top of Your Mortgage

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For most people a home is the most expensive purchase they will ever make. It is also the longest and most expensive debt they will ever have to carry too.

Indeed, according to Joust, mortgage stress is one of the biggest concerns facing home buyers in Australia right now.

So, clearly the quicker you can pay off your home loan the better. 

In this guide, we try to help you do just that, by highlighting 7 tips to get on top of your mortgage.

Do these, and you may just find, you will become free of your home loan much quicker than you previously thought possible.

1. Know what you are getting yourself into

When taking out a mortgage it is important to know exactly what you are getting yourself into.

While many lending institutions will offer an attractive introductory rate, don’t be seduced by it. Do your due diligence and find out exactly what their mortgage entails.

It is important to know when the introductory rate will finish, and what the variable or fixed rate will be when it does. This is a trap many home buyers fall into, being stung by a much higher rate than anticipated when they first took out the loan.

Establish also how long the full loan term is, and most crucially what fees – in particular, non-payment and exit fees – are payable too. Doing this can save you thousands of dollars and several years over the lifetime of your loan.

If you’re feeling strained by your mortgage repayments, check out our tips on how to cut down your spending to save more

2. Make additional repayments

If you can, one of the best tips to get on top of your mortgage is to make additional payments on top of your regular loan repayments.

Even as little as $50 a week means that you will pay off an extra $2600 in a year, which translates to $26,000 over a 10-year period.

These extra repayments will pay off the principal amount owed – as opposed to the loan amount. Which in turn will reduce the amount and length of your loan.

Before you start making extra repayments, just make sure you are allowed to, as per the terms and conditions of your loan agreement.

3. Organize weekly repayments

If you can, try and secure yourself a mortgage that allows you to make repayments weekly.

This simple, yet very efficacious practice can save you thousands of dollars in the long run, as it constantly chips away at both your outstanding principal balance and amount of interest owed.

4. Choose a split home loan

When it comes to home loans, interest rates are a key factor in determining how much you will eventually pay.

While there are advantages and disadvantages to both fixed rate and variable rate loans, it might be a good idea – depending on your circumstances – to choose a split loan.

A split home loan allows you to divide what you owe into two sections – one of which has a fixed rate, and the other a variable. So, for example, if you are taking out a $250,000 mortgage, a fixed rate might apply to 50% of the loan amount, and a variable rate may apply to the other 50%.

The beauty of an account like this is that it gives you the best of both worlds. Should interest rates rise you will be protected by the fixed part of the loan. Whereas if they fall, you will be able to benefit from the lower rates on the variable part of the loan.

5. Use an offset account

Want to make some additional repayments to your mortgage without all the money disappearing into your home loan?

Then consider opening an offset account.

An offset account is linked to your home loan and enables you to save money into an account that is then ‘offset’ against the remaining balance of the loan.

This enables you to pay less in interest, because the sum you must pay is calculated on the difference between the outstanding loan balance and the amount you have in your offset account.

To put this into context, if you have a loan balance of $300,000 and you have saved $25,000 in an offset account you will only be charged interest on the amount of $275,000 – which represents the difference between the two sums.

In short, the bigger your offset account balance, the less interest you will have to pay. Just be mindful to open a 100% offset account, otherwise not everything you save will be counted in the calculation.

6. Don’t lower your minimum repayments 

A key advantage of a split loan is that it can save you money when interest rates fall. However, as tempting as it might be, don’t reduce your minimum repayment levels accordingly.

If you are able too, keep paying the same minimum repayment amounts you originally signed up to.

Not only will this constantly reduce the overall principal amount you owe; it will also mean you will pay less in interest over time as well.

7. Regularly refinance

Just because you were successful in securing a mortgage to buy your home from a particular lender, it does not mean you have to stick with them.

Indeed, a great way to save yourself thousands of dollars in interest charges, and many months of mortgage repayments, is simply by refinancing your loan to another bank or financial institution.

It’s worth shopping around every few years to see what refinance possibilities are available. Although do your due diligence, and be aware of what fees and charges will apply, if you do decide to make a change.

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Editorial Disclaimer: The editorial content on this page is not provided by any of the companies mentioned and has not been endorsed by any of these entities. Opinions expressed here are author's alone

The content of this website is for informational purposes only and does not represent investment advice, or an offer or solicitation to buy or sell any security, investment, or product. Investors are encouraged to do their own due diligence, and, if necessary, consult professional advising before making any investment decisions. Investing involves a high degree of risk, and financial losses may occur.

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