7 Tips to Save You Money on Your Home Loan in Tasmania
With recent interest rate movements, and cost of living pressures, we are all looking for ways to save money - especially when it comes to our home loan. Below are seven useful tips to help save you money on your mortgage and pay it off sooner.
Don't pay a loyalty tax to your current lender
Like many any other service industries, lenders can be guilty of charging their loyal customers a 'loyalty tax'. Often, long-term customers are paying higher interest rates than those offered to new applicants.
That is why the team at Finance Brokers Tasmania (FBT) recommend you complete a review of your home loan on a regular basis. Reviewing your loan and interest rates doesn't always mean a refinance. But it is a good opportunity for us to go through your current finances, look and your interest rate and make sure your loan is still the best fit for your circumstances.
Make your repayments weekly or fortnightly and pay a little extra.
Making fortnightly repayments or even weekly repayments, can save you years on your home loan and thousands of dollars in interest. So how does this work you ask?
The secret lies in dividing the monthly repayments into half (50%) for fortnightly payments and a quarter (25%) for weekly payments.
Let's look at a simple example. If your loan repayment is $2000 per month, you repay $24,000 over the year in 12 payments. If you move to fortnightly payments, you will pay $1000 (half) or $500 per week (quarter). Over the year, this would see you pay $26,000; an extra repayment per year without even realising!
However, this trick only works if you halve and quarter your monthly payment. If the lender gives you a weekly or fortnightly repayment option, they may have already made allowances for the 26 fortnights in the year - so you won't get ahead!
Paying a little more money each payment can offer you even more savings. Check out our Extra Repayments Calculator to see how much time and interest you could save over the term of your loan.
Don't pay for home loan features you don't need
Often home loans come with additional package features such as a credit card or an offset account.
These features are generally not free and come with fees, additional costs and in some cases, higher interest rates. As a new borrower, you might think they sound great but as time goes by, you don't really find yourself using them.
It pays to check the comparison rate!
Comparison rates give you a true indication of the cost of a home loan once all fees and charges have factored in. For example, a loan with a higher interest rate but no monthly fees may actually have a cheaper comparison rate than a loan with a lower interest rate and monthly fees and charges. So, the home loan with the lowest interest rate isn't always necessarily the cheapest!
Know your budget!
Borrowers should know their budget and what they can afford. Then shop around for the home loan that has the features that are important to you with the best comparison rate. Better yet, make an appointment with one of our experienced mortgage brokers and let us do the hard work for you.
If you paid Lenders' Mortgage Insurance (LMI) you may be eligible for an interest rate reduction
First home buyers who initially borrowed over 80% of the value of their home (loan to value ratio or LVR) and paid LMI, don't usually qualify for the lender's best interest rates, due to the increased risk of default. This may also be the case if your parents used their property as additional security for your home loan (known as a parental guarantee).
With the increases to house values in Tasmania over the past few years, and your repayments, you may now be eligible to refinance your home loan to a cheaper rate. Speak to your lender or give our team a call and we can help you through the process.
But remember, don't refinance if your LVR is still above 80%
It is important to add that you should not refinance if your LVR is still close to or above 80%. This could see you paying LMI to another lender.
Your credit score can impact your interest rate!
Being approved for a home loan is a long-term commitment so lenders want to make sure you are a worthwhile investment. So, you need to be prepared to provide full disclosure about your financial situation. This includes your income, living expenses, current loan balance, repayment frequency and any other ongoing financial commitments.
Lenders will conduct a comprehensive credit review. They will be looking for a credit report that demonstrates a clear and stable history.
Avoid buy now pay later, pay day loans (BNPL) and other short-term lenders
We are all guilty of wanting things now and BNPL gives us the ability to take goods and services upfront and repay over an agreed period. Short term financing options such as BNPL are becoming increasingly popular - especially as an alternative to a regular credit card. Did you know, however, that these types of loans can impact your credit rating?
Pay day loans and other short-term lenders can have a major impact on your ability to apply for finance. Some lenders will not approve a loan if you have applied with a short-term lender in the previous six months as it may be an indication that you can't manage your income.
Make sure you are paying your credit cards, personal loans, car loans and other debts on time
It's easy enough to miss a payment but if you do, this can impact your credit score. Miss more than one and you might find your application declined!
If you have a bad credit history or credit rating?
Talk to us. While traditional lenders may not consider your application, there are non-conforming lenders who may consider your application. You will pay a premium interest rate but if you make your repayments on time and stay clear of other finance, over time, your rating will improve. You may then be considered a 'safer bet' and have the opportunity to refinance to a lower rate.
Consider a home loan with an offset account or redraw
Ever wondered what the difference is or how an offset or redraw can save money on your home loan?
What is an offset account?
An offset account is a separate account to your home loan. You can deposit your wages and keep your savings in the account and the balance is offset against the principal of your home loan. So, for example, if you had a home loan balance of $500,000 and $50,000 in your offset account, you would only pay interest on a loan balance of $450,000.
While the $50,000 is sitting in your offset account, it is reducing the amount of interest payable each month but is still easily accessible.
Don't expect that all offsets are created the same
There are a few things to look out for when considering a home loan with an offset feature:
- Not all loans offset 100% of the balance of the savings account or they may have a limit to the amount you can keep in the account
- Are you going to have actual savings to offset against the balance of your home loan account?
- Some home loans with an offset account will have fees attached or attract higher interest rates. Make sure these fees and charges don't negate the benefits you receive?
What is a redraw facility?
Making weekly or fortnightly payments, paying a little extra each month or even making a lump sum payment to your home loan, saves you money on the interest you pay. Home loans with a redraw facility allow you access to those extra funds when needed.
Talk to your existing lender to find out if your current mortgage has a redraw feature or if you can set one up. Don't forget to ask about fees so you have all the facts before making a withdrawal!
Review your home loan regularly
We can't stress enough the importance of regularly reviewing your home loan. Just like those jeans you bought last year that are a bit snug; your home loan may no longer fit your lifestyle.
You may have come off a fixed rate, been with the same lender for a few years or are just concerned about your current interest rate and looking at saving some cash.
Regardless of the reason, talk to one of our team of experienced brokers at FBT and make sure you are getting the best value for your money. Give us a call today!
