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Rate rises can be daunting for mortgage holders, but there are ways to safeguard your investment and ensure you’re getting the best deal possible. We’ve put together five steps you can take to help manage your repayments and debt levels to ensure you pay off your home loan as quickly as possible.
The most important step is to check your current interest rate against other competitive offers out there. Any mortgage owner who doesn’t assess their current deal will face growing pressure as rates continue to increase.
Mark Bouris says there are a large number of “Australians who never bother to check their interest rate” and that they simply, “don’t know if they’re paying too much and they never actually refinance, so at the end of the day they’re paying way too much,” says Bouris.
But what other features can help?
- Make the most of offset accounts
Offset accounts allow you to park your savings in a separate account that is linked to your mortgage. This means that the balance in your offset account will be deducted from your total mortgage debt, which can save you a lot of money in interest over the life of your loan.
Offset accounts are generally available on variable rate home loans, so they can be a useful tool for borrowers who are looking to reduce the amount of interest you’re paying on your loan, but there are potentially a few downsides, so it’s best to check with your broker to see if an offset account will fit your circumstances.
- Adjust your repayment schedule
If you’re finding it difficult to keep up with repayments, speak to your lender about adjusting your repayment schedule. This could mean making your repayments fortnightly instead of monthly, or weekly instead of fortnightly.
A good way to look at this is how many repayments you make if you pay monthly instead of fortnightly: If you pay monthly, you only make 12 repayments a year, whereas if you pay fortnightly, you pay 26 times a year.
Saving money on your mortgage might be as simple as paying it every week. Because interest is usually calculated daily, by assessing the balance at the end of the day, paying your home loan weekly will result in the greatest savings. Not only do you pay back the principal sooner, but you also decrease the interest charged with frequent payments.
It’s best to let your Yellow Brick Road mortgage broker know if you wish to change your repayment schedule, as we’ll check if your loan offers this option and that it doesn’t charge extra fees for making more frequent repayments.
Learn how much you can save through refinancing.
- Find certainty and flexibility with a split loan
What is a split home loan? If you’re looking for a little more certainty in an uncertain market, consider a split loan mortgage. This type of loan allows you to have two different interest rates – one for variable rates and one for fixed rates – giving you the flexibility to access the benefits of both products.
- Make additional repayments
Making additional repayments can help you pay off your home loan faster and save you money in interest. If you’re able to make even a small extra repayment each month, it can make a big difference over the life of your loan. This is a strategy that serves you best when you plan ahead and commits to extra repayments for a certain period of time.
- Pay Principal and Interest
A home loan that pays principal and interest repayments (also known as a P&I loan) splits the repayment of your mortgage into two parts: the principal, which is the amount you borrowed from the lender, and the interest, which is what you pay for borrowing that money. This type of loan will usually have a lower interest rate than a loan that only pays off the principal. It’s important to remember that you will still need to pay off the interest on your loan, even if it’s not included in your monthly repayment calculation. This is an important distinction to ask your mortgage broker about when considering the best home loan deal for you.
If you’re worried about rising interest rates, these are just a few of the things that you can do to protect yourself. Be sure to speak to a Yellow Brick Road Home Loans mortgage broker about your options and get them to do the heavy lifting. They can shop around for the best deal possible and give you the guidance you need. With a little bit of preparation, you can weather any rate rise storm.
If you have any questions, reach out to our home loan experts today!