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Paying down your mortgage sooner
Did you know that recent changes to lending standards now require Australian banks to assess your loan differently? With the national cash rate at an all-time low, banks are reducing their risks (and consumers’ risks) by adding a ‘buffer’ amount to actual interest rates when calculating what they are willing to loan mortgagees. But what if you – the homeowner – took this one step further and increased the amount you pay on your mortgage each month? Why, you’d pay down your mortgage sooner, likely building enough equity in your home to begin building an investment portfolio. In today’s blog, C&G brings you great ways to really eat into your mortgage.
Opt for the servicing rate
According to Daniel Hustwaite at Aqua Financial Services, Australian banks add approximately 3.00% per annum to the actual rate you’re paying when calculating your potential loan, to gauge your ability to repay should rates go up. Choosing to make repayments at the banks’ servicing rate can save you interest and reduce your loan term. With current interest rates at an all-time low, it’s worth digging a little deeper and eating into your principle loan.
Make your contributions align with payday
Do you get paid fortnightly, but make your mortgage repayments monthly? Start contributing to your mortgage fortnightly to align with payday. Effectively, this will cut down interest payable – an action that will most certainly save you money over the course of your loan.
Get out the calculator
If you’ve got a home loan, you’ll have worked out a rate of repayment that works for you. However – your circumstances may change over time, even marginally. The thing about margins, though, is that small changes can add up over time. A little increase in repayments can make a difference when it comes to reducing the lifespan of your loan. The best way to work out the magic margin? Online loan calculators. Experiment with different figures of increase – you can knock years off your loan for as little $100 of extra contributions per month.
Perform a mortgage health-check
Talk to your lender or broker. They’ll be able to provide you with advice on the above, along with taking another look at your loan. At the end of the day, a mortgage is a product, and better versions can sometimes supersede the one you’ve got. Interest rates also change, meaning that a variable rate may be preferable to a fixed one, or vice versa.