With rates rising so much over the last year, high interest and hefty monthly repayments are putting pressure on many household budgets. Fortunately, there are several strategies that can reduce the amount you pay in interest. In this blog, we will explore some of the best ways to save money on home loan interest in 2023.
1. Review Your Home Loan Regularly
You can review your home loan every year to keep track of interest rates, identify opportunities for refinancing, and ensure that you are taking advantage of all available options and offers that lenders are providing. Consider the following steps during the review process:
- Check interest rates and compare them to see if better home loan products are available on the market.
- Make sure you understand the terms and conditions of your loan, including any potential penalties for early repayment.
- Check if you need to make changes to your repayment plan.
- Ensure that you are not overpaying fees for any features you are not using.
By making informed decisions, you can pay off your loan faster and reduce the cost.
2. Make Extra Repayments
By making extra repayments, you are reducing the debt more quickly, which means paying less interest over the loan term. You can either increase your monthly repayment amount or make occasional lump-sum payments if you receive a large amount of money, such as a tax refund, monetary gift, inheritance or work bonus. You can also switch to fortnightly instead of monthly repayments; this means paying slightly more each year, as you will have three repayments due in some months. You should first talk to your broker to find out how increasing your repayment frequency can help you. You also need to check with your lender first, to find out if they charge any penalties for making extra repayments.
Note: It’s important to be mindful of the impact on your finances of increasing the amount or frequency of your repayments. Home Loan Experts’ specialist mortgage brokers can assist you in evaluating your needs and making informed decisions. Call us on 1300 889 743 or fill in our free online assessment form.
3. Make A Larger Deposit
Making a large deposit can help you save money on interest in two ways. Firstly, by decreasing the loan amount, leading to lower total interest paid. Secondly, by lowering your Loan-to-Value Ratio (LVR). A lower LVR can make you eligible for a lower interest rate offer from the lender. Also, having an LVR of 80% or less means lenders will waive Lenders Mortgage Insurance for you.
4. Put Your Savings Into An Offset Account
An offset account is a savings account linked to your home loan that reduces the interest you pay on the loan. Instead of calculating interest on your total loan amount, lenders calculate it on the loan amount minus the balance in your offset account. For example, if you have a $400,000 loan and $30,000 in an offset account, you will pay interest on only $370,000. In this way, keeping money in an offset account can save thousands on interest over time. You can also access your money in the offset account whenever you like.
Note: Most lenders do not offer offset accounts with fixed-rate loans but there are exceptions. Home Loan Experts brokers can identify them for you.
5. Choose A Fixed-Rate Loan
Choosing a fixed-rate loan can help you lock in an interest rate for a set period, providing you with stability and certainty. Your interest rate and repayments will remain the same for the term, regardless of any changes in interest rates by the lender. You can potentially end up with lower interest rates than most variable-rate loans if rates go up.
It’s important to consider, however, that fixed-rate loans may limit your ability to make extra repayments, refinance or access additional loan features. You need to consider your financial goals and circumstances when deciding whether a fixed term is right for you.
6. Refinance To A Lower Interest Rate
Refinancing can help you secure a lower interest rate and reduce your repayment amount. There can be several reasons for refinancing, such as obtaining better rates, switching to other loan types, unlocking additional features, consolidating debt or accessing equity.
With interest rates on the rise, there is a surge of home loan borrowers looking for refinancing options. Lenders are offering incentives such as cashback to attract these customers. It is important to do your own research, compare refinance products and decide on the best option.
7. Refinance To Consolidate Debt
You can refinance to take out a new loan and use the funds to pay off your current loan, including all your existing debts, to consolidate them into one single loan. This helps simplify your finances, as it leaves you with one recurring repayment with a single interest rate instead of multiple repayments with varying rates. Also, the interest rate on home loans is usually lower than on credit-card debt or personal loans, which will save you money on interest in the long run.
Remember, it’s important to compare interest rates, fees and repayment terms carefully and seek professional advice before making a decision, as consolidation may lead to paying more in interest and fees if you get the wrong deal.
8. Refinance To Shorten Your Loan Term
You can refinance to a shorter-term home loan; for example, changing a 30-year loan term to 20 or 25 years. This can potentially reduce the total amount of interest you pay over the life of the loan and help you pay off the loan faster. But you need to be able to afford higher monthly repayments.
If you are looking to refinance, Home Loan Experts can assist you with identifying the best lenders for your situation, check your eligibility for cashback offers, and determine the best option for your needs. Call us on 1300 889 743 or enquire online for free today!
9. Improve Your Credit Score
Your credit score reflects your creditworthiness. Lenders use it to determine your loan eligibility and interest rate. A high credit score means you get better loan terms, which helps you save thousands over the course of your loan. Improving your credit score before you apply for a new loan or refinancing can make you eligible for lower interest rates and increase your chances of receiving offers and incentives. It will also provide you with a better negotiating position when making a pricing request to lenders reviewing your home loan rates.
10. Contact Your Lender To Negotiate Pricing
If you have any questions or concerns about your loan, reach out to your lender for clarification. This is another place where Home Loan Experts’ mortgage brokers come in. They can submit a pricing request and negotiate with your current lender to get you the best rate. Lenders value your business and might agree to adjust your interest rate and provide additional support, saving you money on home loan interest.
Need More Help?
Let Home Loan Experts assist you in finding the best ways to reduce the total cost over the life of your loan. Our specialist mortgage brokers can guide you through the options available from our panel of over 50 lenders to find the right deal for you. Contact us on 1300 889 743 or fill in our free assessment form today.