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How to Save Big on Your Mortgage: Expert Insights by Ben Nash
Your mortgage represents one of the most substantial expenses in a household, and although interest rates are on a downward trend, many Australians find themselves under financial pressure. Ben Nash, a finance expert, shares effective strategies that can enable average homeowners to save significantly on mortgage repayments, potentially cutting years and hundreds of thousands off their loan costs. Below are the top five methods for reducing mortgage expenses:
1. Refinancing: Harnessing Competitive Rates
Many homeowners remain loyal to their banks for years, inadvertently paying more in interest compared to new customers. Data suggests that long-term customers often face rates that are 0.5% to 1% higher than what new borrowers receive. On an average mortgage of $665,978, this discrepancy could mean an extra $3,329 to $6,658 annually in interest. Refinancing to secure a lower rate can save you around $197 a month, translating to nearly $97,000 savings over a 30-year mortgage – allowing you to pay off your loan 4.5 years earlier.
2. Increase Payment Frequency
While it may seem trivial, switching from monthly to weekly repayments can reduce your loan term by nearly six years. By breaking down monthly payments into weekly contributions, homeowners effectively make an extra month’s payment each year. Over 30 years, this can save close to $195,964 in interest costs due to daily compounding of mortgage interest.
3. Utilising an Offset Account
An offset account can be a powerful tool in reducing mortgage payments, yet many miss out on its full potential. Every dollar in this account offsets the mortgage balance, thereby reducing interest charged by the bank. For instance, if you have a $30,000 balance in an offset account against a $665,978 mortgage, your effective mortgage balance reduces to $635,978, potentially saving you around $108,000 in interest and allowing you to pay off your loan 2.8 years faster.
4. Make Extra Lump Sum Payments
Unexpected financial windfalls, such as bonuses or gifts, provide an opportunity for significant savings. By applying a lump sum payment to your mortgage, you reduce the principal immediately, which curtails future interest accrual. For example, a $10,000 payment on a $665,978 mortgage could save up to $45,000 in interest and shorten your loan term by 1.4 years. Doubling that to $20,000 can save approximately $90,000 and cut the term by 2.8 years. The sooner you apply these payments, the greater the interest savings.
5. Optimise Loan Structure
Choosing the right loan structure is crucial for effective debt management. Options include fixed versus variable loans or a combination of both, which can ensure stable repayments while allowing for extra payments when possible. More advanced strategies, such as debt recycling, can convert non-tax-deductible mortgage debt into deductible investment debt, effectively lowering your interest rate and leading to additional savings.
Summary of Savings
By implementing these strategies, homeowners can achieve considerable savings on their mortgage. The techniques outlined have the potential to generate a total interest saving of $445,964 and can reduce the mortgage repayment term by around 14.7 years.
Conclusion
A 30-year mortgage does not have to burden you for three decades. By actively refinancing, changing your payment frequency, utilising offset accounts, making extra repayments, and optimizing loan structures, you can significantly alter your financial future.
For those wanting to delve deeper into mortgage savings, Ben Nash’s tools and insights offer a wealth of information.
Disclaimer: The information provided is general and does not account for personal financial situations; professional financial advice should be considered for tailored strategies.
If you’re interested in exploring potential savings on your mortgage further, visit our mortgage comparison tool for assistance.
