Save yourself $4700 annually on your mortgage
Home loans have never been cheaper so borrowers should be trying to be pay off their debt faster. There are some easy changes you can make to save thousands.
National
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Savvy borrowers could save $4700 in 12 months by making a handful of changes to their mortgage.
Home loan rates continue to fall, delivering customers a once in a lifetime opportunity to rapidly reduce their debt.
Some rates — both fixed and variable — are now below three per cent.
New figures from financial services firm Canstar found if customers made five simple changes to their mortgage there’s huge annual savings to be made.
Simple tweaks including getting a better interest rate, pumping in extra cash and not paying an annual fee are a good way to start.
Simple mortgage tricks to save your money
RBA rate cut delivers these savings for borrowers
The firm’s group executive of ratings and financial services, Steve Mickenbecker, said two consecutive rate cuts by the Reserve Bank of Australia and the arrival of the new financial year should prompt borrowers to swing into action.
“Take matters into your own hands and do you own comparisons,” he said.
“There’s some amazing deals out there but you might have to switch lenders to save.”
Mortgage Choice chief executive officer Susan Mitchell said the latest rate offers were “incredible” and borrowers should be snapping them up.
“It’s a good time to call a broker and see what rate you are on and see if you can get a better rate,” she said.
These are some easy ways to become mortgage free sooner.
1) SWITCH TO A CHEAPER RATE
Sisters Lisa, 42, and Tania Costello, 41, both school teachers, purchased their property together in 2014 and recently refinanced.
They switched from National Australia Bank to Macquarie Bank which instantly delivered savings.
Their mortgage interest rate fell from 4.47 per cent to just 3.44 per cent, saving them thousands of dollars a year on their $540,000 loan.
The pair also took out a shorter loan of 20 years, instead of 30 years, to help pay off their debt faster.
Lisa said they wanted to “pay down their loan as quickly as possible” and refinancing would save them about $390 per month.
“Refinancing was the best way to go forward,” she said.
“This is working in our favour and we can pay back the loan at a lower rate and quicker, we don’t want to be in our 60s to be paying off a mortgage.”
Lenders are desperate for new business, putting borrowers in the box seat to score good deals.
Smaller lender Reduce Home Loans has the lowest variable home loan rate at just 2.89 per cent, while there’s many fixed deals also beginning with a “2.”
Canstar figures found on a $500,000 30-year loan borrowers could save $4180 a year on their loan by switching from the average variable rate of 4.14 per cent to the lowest variable rate of 2.89 per cent.
Annual savings on a $500,000 loan: $4180.
2) ANNUAL FEES
Borrowers can easily spend hundreds of dollars paying an annual fee to maintain their home loan.
But Canstar data found borrowers could save on average $75 per year by switching from the average home loan annual fee to no annual fee loan.
Mr Mickenbecker said there’s plenty of no annual fees loans available.
“A lot of no-frills style products have low or very low fees,” he said.
“You don’t have to pay fees these days, the market has changed a lot of recent years and it’s become a lot more competitive.”
Annual savings on a $500,000 loan: $75.
3) USE AN OFFSET ACCOUNT
These daily transaction accounts are linked to your mortgage.
If you have a $500,000 loan and $10,000 in an offset account you will only be charged interest on $490,000.
Canstar figures found this could save borrowers $422 a year in interest charges by switching to a mortgage with an offset account.
Mr Mickenbecker said it’s one of the easiest ways to bring down your monthly interest charges.
“Offset and redraw accounts do the same thing, they both allow you to make extra repayments with confidence if you need the money you can get the money back,” he said.
“Offset is an a separate account and you can put money in like your salary in there.
“Take advantage of your regular float, such as your salary, but the real benefit is if you do have a large sum of cash, you will not get an equivalent interest rate if you put it into a savings account.”
Lender ING’s manager of mortgage Will Kiln said of their mortgage customers the median amount kept in an offset account was $11,000.
Annual savings on a $500,000 loan: $422.
4) PAYING EXTRA
By throwing an extra $50 per week onto your $500,000, 30-year home loan borrowers would only save $50 in interest over 12 months.
However by making this additional repayment over the loan term it would save them a massive $62,668 in interest costs and they would pay off their loan four years and five months sooner.
This is based on the average variable rate of 4.14 per cent.
Ms Mitchell said the fastest way to shave down your debt was to pay more than the minimum repayments to reduce your overall interest charges.
“If you are on a variable rate loan you can pay extra down every week or put more payments in,” she said.
“Or you can keep your repayment the same when there’s an interest rate fall, a lot of people did this after the global financial crisis.
“Many people have got used to a certain amount going onto their mortgage and so they keep the repayments the same and are reducing their loan more quickly.”
Annual savings on a $500,000 loan: $50 but $62,668 over the total loan term.
Total annual savings in 12 months: $4727.
Originally published as Save yourself $4700 annually on your mortgage
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