Buying a home will probably be the biggest purchase of your life, and a mortgage the biggest financial commitment. The idea of such a big financial commitment and the cost of borrowing such a large sum over decade can be daunting. But if you shop around for the best deal, have a realistic budget, and make some smart choices about how you repay the mortgage you could save tens or even hundreds of thousands of dollars over the course of the mortgage. Check out our top tips to save on your mortgage:
1. Shop around for the best deal. There is no obligation to stay with your current bank or lender, so compare as many options as you can to find the best deal for you. Money Compare can help you compare mortgage providers to find the one that suits you best. There can be big variation between different types of mortgages – choosing the right type of mortgage for your situation and repaying it quickly can save thousands of dollars.
2. Only borrow what you need and be realistic about what you can afford to repay. Before you start, try to make a realistic budget to work out how much you can commit to borrowing and how quickly you can repay it. Consider whether you would prefer the certainty of paying back a set amount per payment with a fixed interest loan, or if you’d prefer the flexibility of a floating interest rate loan so you can make changes to your repayments
3. Repay as much as you can. When you set up your mortgage you don’t have to go with the repayments the bank suggests. If you feel you can pay back more, do. You could potentially save yourself tens of thousands of dollars over the course of a 20-30 year mortgage.
For example: A $600,000 mortgage at 5.99% interest will have minimum payments of around $829 per week for a 30 year mortgage and you would pay around $ 692,755 interest. If you increase your payments by $70, to $900 per week you would pay it off 6 years earlier and save around $150,000 in interest.
So put together a spending plan to cut back on unnecessary spending and pay back as much of your mortgage as you can. Just make sure you have an emergency fund to cover anything unexpected.
4. If you move to a mortgage with a better interest rate, don’t lower your regular repayment amount.
To continue the example above: of you changed to a mortgage interest rate of 5.79% your minimum repayment would be $811 per week instead of $829. But if you maintain a weekly payment of $829 per week you could save $41, 637 in interest and pay off your mortgage 2 years earlier.
5. Pay your mortgage fortnightly instead of monthly. This weird tip could help with big savings! There are 12 months in a year, but there are 26 fortnights. Divide your monthly payments in half and pay them fortnightly, giving you 2 extra payments per year.
For example: In a $600,000 mortgage with 5.99%, you could pay $3593 per month over 30 years, with $693,641 interest. If you adjust to repayments of $1796 per fortnight, your mortgage would be repaid 5 years sooner with $147,768 less paid on interest.
Whether you are a first-time buyer, buying your next home, building or thinking about switching your current mortgage, we can help you compare the options and save.