For many Australian families, the largest single expense they have is their monthly mortgage repayment.
Due to the sheer size of the average mortgage, as well as the effects of compounding interest, even a small saving can lead to substantial long term benefits.
There are a number of things you can do to save money on your home loan, and many of them are relatively easy and inexpensive to implement.
Have the Right Type of Loan
One of the easiest ways to save money on your home loan is to ensure that you have the right type of loan for your needs.
Many Australians have standard variable rate home loans with their bank, but what they don’t know is that most banks also have basic variable rate home loans available.
The interest rate on a basic home loan can be up to 0.50% lower than the standard variable rate, which could mean a monthly interest saving of around $100 on a $250,000 mortgage just by switching your loan product.
The best part about switching to a different loan product with your existing lender is that you generally won’t have to reapply or refinance. Some lenders charge a fee of around $250 to switch products, however this will generally be recouped quite quickly.
Negotiate With Your Lender
All banks and lenders in Australia are keen to grow their home loan business. It is the reason why they spend millions of dollars on advertising every year.
Before you consider refinancing to a different bank, it is worth asking your existing lender if they are able to offer you a better deal on your interest rate or fees.
When you ask for a better deal from your existing lender, it certainly doesn’t hurt to tell them that you’ve been shopping around and that you would be happy to refinance elsewhere for a better deal.
Refinance to a Better Rate
If your existing lender cannot offer you a better deal, the next best option is to consider refinancing to a different lender.
There are dozens of lenders who offer home loans in Australia, and right now the difference between the highest variable rate and the lowest variable rate is a whopping 1.1%.
To put that into perspective, the difference in repayments on a $250,000 loan between these two products is $230 per month!
Take Advantage of Discounts
Some lenders offer discounts on other products if you have your mortgage with them, especially if you have a professional package loan.
Discounts can include waived fees on your savings accounts and credit cards, and even lower premiums on your insurance.
If you are paying account keeping fees and annual credit card fees with another bank, it may be worth packaging your products with one bank in order to save on your fees and charges.
Utilise an Offset Account
A mortgage offset account can help to reduce your monthly interest bill. This works by offsetting any money in your offset account against the balance of your mortgage.
Loans with offset accounts will generally feature a higher interest rate, so you will need to maintain a large enough balance in your offset account to justify the added expense.
When setup properly and used in conjunction with an interest free credit card, there are certainly savings to be made via an offset account.
Putting It All Together
Whilst not all of the tips listed above will result in huge savings, when combined with each other they can lead to a noticeable saving on your mortgage.