Deciding to take on a mortgage is one of the biggest financial commitments many of us make. So it’s important that we keep an eye on our mortgages to ensure they don’t become a burden.
Here is a list of our top tips to help keep a mortgage under control.
1. Do a Home Loan Health Check
Have a look around and compare the rate that you’re paying to what’s currently available in the market. This will show you if you’re paying too much and if there are better deals around. Don’t be afraid to ask your bank to meet the market rate or to investigate whether switching lenders might be right for you. Financial advisors recommend completing a home loan health check every couple of years.
2. Investigate refinancing your loan
As the value of your property shifts over time, so too should the interest you pay for it. Don’t be a victim of complacency. Have a look around for a better deal and consider refinancing your loan if you find a better deal. Look for better interest rates, fees and terms. A good mortgage broker can help if you don’t feel confident or if you don’t have time to do your own research.
3. Consider consolidating your debt
If your goal is to reduce your debt repayments consider consolidating your debt. For example, some people use the equity they’ve got in their home to consolidate other debts like car loans, credit cards or personal loans, into their home loan. This strategy should be talked through with a financial advisor to ensure its right for you as it’s not always the best option.
4. Don’t underestimate the power of compounding interest
As financial expert Noel Whittaker says, “As the loan term increases, small increases in payments make a big difference”.
When it comes to managing your mortgage it’s best to find what works for you. After all, no two people are the same. The decision to pay off a mortgage faster, maintain current repayments, lower repayments and/or to refinance will depend entirely on the person, their assets, their liabilities and their aversion to risk and debt.
A couple has a $150,000 mortgage at 6.5% interest being paid over 30 years. Their monthly repayments will be $948 and they will pay a total of $191,000 interest.
If they pay an extra $170 a month, they’ll take 10 years off the time it takes to pay their mortgage and they will pay $118,000 in interest, saving them $73,000.
To reduce the loan term from 30 to 10 years, they would need to pay an extra $170 a month again – taking total repayments to approximately $1703 and paying $54,380 in interest.
Once the loan term is down to about 10 years, extra payments don’t help as much as if extra payments were being made on a 30 year loan.
As finance expert Noel Whittaker puts it, “The level of gearing a borrower is comfortable with will depend on three things: assets, income and stomach muscles.”
If you want to compare the mortgage market the below sites are great places to start: