1. Make extra repayments
Additional repayments such as bonuses and tax returns can reduce the principal on your mortgage faster. The earlier you start making extra repayments, the greater the benefit in terms of money saved.
2. Make your first repayment on settlement date
Your first home loan repayment will generally be due one month after settlement. By making your first repayment on your settlement date you reduce the principal before the first lot of interest is applied on the amount you have borrowed.
3. Make repayments more often
If your loan repayment amount is calculated monthly, you can make significant additional savings by halving your monthly repayments and paying fortnightly instead. This method will result in you paying an additional month’s worth off your mortgage every year, but be sure to check the fine print in your loan documents to ensure your lender has not calculated your fortnightly repayments to equal half what the monthly repayment would have been, as this will not save you in time or money.
4. Pay loan fees and charges up front
Pay establishment fees, legal fees and Lenders Mortgage Insurance (if applicable) up front rather than consolidating them into your loan. This will save your thousands of dollars over the loan term.
5. Look for loans that offer features without a charge
Some loans will charge a fee for every extra repayment, to switch from a variable to a fixed rate, to take repayment holidays etc, but some won’t. You can save the cost of fees if you know what you’re likely to want to use and find a loan that doesn’t charge you to use it.
6. Look outside the big banks
The big banks aren’t the only, or even the best, places to borrow money. Many smaller banks and specialist lenders have very competitive loans available. Just because you haven’t heard of a lender doesn’t mean they aren’t reputable – your mortgage adviser will know which lenders are credible and suitable for your situation.
7. Home loan portability
A lot of people don’t stay put in the one place for the 25 or 30 years their loan covers. Many home loans will offer a feature called loan portability, this allows you to transfer your loan to a new property. Because it’s the same loan, you avoid the cost of paying exit and entry fees.
8. Align your repayments with your income cycle
Changing your repayment dates to match your income cycle helps you to take advantage of the money sitting in your account for as long as possible.
9. Don’t lower your repayments when interest rates fall
It may be tempting to let your home loan repayments keep pace with the minimum required repayments when interest rates fall and pocket the difference. Before doing this, consider that keeping your repayments at the old level will cut a significant portion of principle off your loan, particularly if rates continue to drop.
10. Review your loan regularly
Reviewing your loan regularly will help you to assess its effectiveness and take steps to correct any waste if necessary. Being on top of changes will potentially save you a lot of money.