There are a number of changes that can be made to the structure and conditions of an existing mortgage which can help you save significant amounts each year.
- Refinance your mortgage
With interest rates currently as low as they are likely to go, and banks in competitive mode, it is a good time to refinance a mortgage. Results Mentoring coach Brendan Kelly says that if your mortgage is not already set at a fixed interest rate, it would be prudent to get it set at one immediately.
Find a bank offering an attractive 2-3 year fixed interest rate and refinance with that bank, or negotiate to refinance at that rate with your existing bank, he says. “If you can do that now, that will save you money because fixed rates at the moment are much better than the variable rates.”
- Go for interest only loan repayments
Opting for an interest-only loan payment structure, instead of a normal principal and interest loan, can help save money. An interest-only loan essentially means you are not paying down your debt, rather you are merely servicing the loan itself.
Kelly says it is only possible to do this for a period of up to 5 years, which means to maximise the savings potential it would be a good idea to sell the property in a shorter time period. Otherwise, you have just accumulated more debt to pay in the long-term. Since you’re not paying off your principal, you’re not reducing your debt.
- Set up an offset account
A great way to cut your interest and make some savings is with a mortgage offset account. A 100% offset account works like a standard transaction account, but the money in the account is used to offset your mortgage loan. Interest is then only charged on the remainder of the loan.
- Be strategic with credit
Smart money management using your credit card is a strategic way to save some funds. Empower Wealth’s Ben Kingsley explains that on a credit card there is an interest-free period of up to 55 days on repayments.
Put your bills and fixed costs on your credit card, he says. “That gives a rolling credit balance on that card. If balance is down, there is an auto-sweep. This ensures no interest and allows that money to, essentially, be part of an off-set account.”
- Follow good practice
Sometimes it can be difficult to quantify exactly how much a certain tactic might help you to save, particularly on an annual or shorter-term basis. However, some of these tactics are good practice and will end up saving you money, particularly in the longer-term.
- Paying all your mortgage fees and costs up front
- Always checking your statements: mistakes can cost
- Remaining every ready to renegotiate terms and conditions with your bank
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