Promoted by Metropolitan Plumbing, Electrical and Air Conditioning
With interest rates on the rise many homebuyers are searching for ways to save on their mortgage payments.
The Reserve Bank of Australia (RBA) is likely to raise interest rates further, which could push some homebuyers into mortgage stress – if the recent hikes haven’t done that already.
Inflation is on the rise and the household budget is already being pushed to a straining point, so it could be the right time to find ways to reduce that mortgage stress. Whether you’re just starting out or you’re well into paying down your mortgage, there are always ways to save money and steps you can take to reach your goal quicker.
1. Get Serious About Your Budget
There’s no big secret to saving money – you need to earn more than you spend. If you’re attempting to pay down your mortgage without a strict budget then you’re flying blind and leaving it to chance.
You need to consider your income against your spending habits and set limits, from grocery shopping to clothes, gifts and entertainment. When it comes to power bills, there are a number of ways to save on water, electricity and gas.
Take a close look at your power usage to find ways to cut down, such as:
- Never leave lights or appliances on (including the TV) for no reason
- Try to take shorter showers – particularly important if there are four or five people in the household
- Save money with home maintenance
- If you use a reverse cycle air conditioner, set it to “auto” so it switches off when the desired temperature is reached
- Consider installing solar panels. There are upfront costs but in the long run there will be considerable savings on energy bills.
It’s always hard to stick to a budget but it pays to review it regularly – which is particularly necessary due to rising interest rates – and plan ahead for any major expenditure (e.g. renovations, new car, holiday). Putting extra aside for planned expenditure helps you to stick to your budget rather than abandoning it.
2. Set Up an Offset Account
If you’ve got a savings account separate from your mortgage, you might be wasting money. Is the small amount of interest you make (which is taxable income) really worth it?
If you set up an offset account against your mortgage, you can seriously reduce the amount of interest you’re paying. In effect, you only pay interest on the difference between your loan and the amount in your offset (e.g. if you’ve got a mortgage of $300k and an offset account of $100k, you’re only paying interest on $200k).
It's like making extra repayments every time money goes into the offset. This will make a considerable difference if you can build that offset account over the years, but it does take discipline.
Also read: The benefits of an offset account
3. Make More Frequent Repayments
If you’re currently making monthly repayments, consider changing that to fortnightly repayments. That means making a half-payment every fortnight, which will help you save money in two ways.
For a start, you’ll be reducing the home loan principal more frequently, which will lead to lowering your interest costs. On top of that, there are 26 fortnights in a year, meaning you’ll make 13 full payments per annum instead of 12. The extra repayments will add up over the years.
4. Consider Refinancing
Did you enter a mortgage deal that looked great at first but doesn’t look so hot any more? There’s nothing to stop you from looking around at other banks and money lenders to see what products for home loans are out there.
You might even take note of what’s being offered elsewhere and go to your bank or lending institution and see if they can set you up with a better home loan. You can also consider getting a fixed interest rate. Knowledge is power and if you know what products are available, your money lender will sit up and take notice.
Another reason to refinance is if you’ve got other debts that you’re paying off. It would be wise to consolidate those debts in your mortgage – the interest rate is bound to be better.
See the latest refinancing loan rates in the market here: Compare refinancing home loans
5. Do You Need to Downsize?
It can’t hurt to take a realistic look at your property and mortgage and, if it’s the case, admit you’ve bitten off more than you can chew. If you can’t manage to budget for your current mortgage repayments it might be time to consider downsizing to a more affordable property.
It’s not an easy decision to make and keep in mind there are considerable costs in selling, moving and buying another property. While it could be a sensible decision, make sure you take a good look at the current real estate market conditions and then do the figures.
To wrap things up, there are plenty of simple strategies to reduce mortgage stress and reach your goal of home ownership quicker – even in difficult financial times.