Whether you are just thinking of starting out on your home-buying journey or are already halfway through, you can always find ways to save money on your mortgage.
Below are 9 proven tips on how to save money on your home loan through each step of your journey.
How To Save Money On Your Deposit
A standard home loan has an 80% Loan-to-Value Ratio (LVR). The borrower needs to contribute the remaining 20% as a deposit.
Here’s how you can save money on your deposit:
1. Negotiate With The Seller
Obviously, a lower price for the property you are looking to purchase can significantly bring down the total amount you need to borrow and the deposit you need to contribute.
Working with a real-estate agent and getting an inspection report for the property are the two most effective ways of negotiating a more favourable price. You can also ask for items such as furniture and fixtures to be included with the purchase. While this does not reduce the property price, you’ll save by not having to purchase the same items for the house. The amount you save by doing this can be used to pay your deposit, or to make your monthly mortgage repayments.
2. Get An LVR above 80%
Whether you don’t have the standard 20% deposit contribution saved up or you want to invest some of your savings somewhere else, borrowing at an LVR above 80% is an option.
There are plenty of ways to borrow above 80% LVR without paying Lenders Mortgage Insurance (LMI):
- Borrow up to 105% of the property value with a guarantor (your guarantor’s property must be in Australia).
- Borrow up to 100% using the equity in another property.
- Borrow up to 95% with the First Home Loan Deposit Scheme (FHLDS) or other government schemes.
- Borrow up to 95% with a gift deposit.
- Borrow up to 95% with a personal loan as a deposit (low-risk borrowers only).
If you qualify for one of the above schemes, you can save thousands of dollars on your deposit and LMI.
How To Save Money Through Researching Loan Products
It’s important to shop around for the best home loan rates. You may be tempted to go with the first lender you find, but this can often lead you to spend more money than necessary.
Here’s how you can save money by researching loan products:
3. Find The Best Loan Offers For Your Situation
The interest rates lenders offer differ on a case-by-case basis. For instance, the rates offered to an expat, a self-employed individual, someone with bad credit, and a PAYG employee with good credit scores differ vastly at traditional banks. If you are someone who doesn’t have a standard loan application with no complications, then looking beyond traditional banks is ideal.
There are wholesale lenders, specialist lenders and online lenders that cater to complicated loan applications. Some provide cheaper interest rates, while some accept loan applications that traditional banks reject but with a higher interest rate. After finding lenders that cater to your situation, you can start looking for the cheapest rates and best offers, to save as much money as possible.
The profession you are in can also get you discounted loan offers, including as much as a 1.5 percentage point discount on your interest rate. Here are some professions that get special deals and offers from lenders:
- Healthcare workers
- Government employees (federal and state level preferred over local level employees)
- Australian Defence Force (ADF) staff
4. Check Loan Fees
Lenders often charge fees for their home loan products. These can include application fees and ongoing fees.
Before choosing a loan, be sure to check what fees are involved. Finding lenders that don’t charge any loan fees will help you avoid paying more than necessary.
How To Save Money On Your Mortgage Repayments
The average person will spend a large chunk of their life paying off a mortgage, so it’s important to try to save as much money as possible on those repayments.
Here are a few tips on how you can do just that:
5. Negotiate A Lower Interest Rate
The interest rate on your mortgage is one of the biggest factors that will affect how much you pay in total. If you can negotiate a lower interest rate, you could potentially save thousands of dollars over the life of your loan.
To negotiate with a specific lender to lower their advertised interest rate, you need to go through a mortgage broker. Home Loan Experts’ mortgage brokers can place discount requests with lenders on your behalf. They can negotiate the lowest interest rate available in the market to save you money.
6. Get An Offset Account
If you get an offset account linked to your home loan, it functions as a regular everyday account, allowing you to withdraw money from ATMs and buy things using a debit card. But the money in the account is also offset against your mortgage, so you pay interest only on the balance of your loan minus all or part of what is in your offset.
What happens if I maintain $50,000 in my offset account?
If you have a $600,000 home loan with a 3.6% interest rate and a 100% offset account with a $50,000 balance, interest will be charged on only $550,000 of your home loan.
Note: Some loan products offer only a partial offset feature.
7. Make Extra Repayments
If you get a redraw facility with your home loan package, you are allowed to make extra repayments. If you keep the extra funds untouched, your loan term will reduce and much like with an offset account, the total interest you have to pay will also decrease.
What happens if I pay an extra $300 a month on my mortgage?
Suppose you have a loan of $400,000, for which you pay an annual interest rate of 5.5%, and the loan term is 30 years. That makes your monthly repayment $2271.16. If you start making an extra $300 a month on your mortgage from the first year, you save $115,681.53 in interest and pay off your mortgage seven years and two months sooner.
You can use our extra repayment calculator to find out how much extra money you would want to repay to save the amount you wish to save.
8. Fix Your Interest Rate While They Are Low
If the overall market rate is low, you can opt to fix your interest rate for as long as five years to avoid paying a higher rate when the market rate increases.
Fixing your interest rate can help you budget better and give you the stability of knowing your mortgage repayments for a set amount of time. This will save you thousands of dollars if the difference between the rate you pay and the current market rate is high.
9. Make Interest-Only Repayments
If a lender offers the option of making interest-only repayments for a certain period, you may want to take that offer to save money over the short term. Just remember that you’ll need to make principal repayments eventually. So, this option is suitable for people who want a temporary increase in cashflow and are fairly certain they can afford to make those larger repayments in the future.
Get A Home Loan Today!
We at Home Loan Experts can help you save money on your mortgage by getting you the best home loan deals to choose from. Fill out our free assessment form or call us on 1300 889 743 to start your home loan journey today!