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Whether you are an investor or an owner occupier, you would agree that choosing the perfect property, according to your taste and requirement, is an uphill task. Besides, to ensure that you buy a well-performing property, several factors such as location, amenities, market condition, etc. need to be taken into account. Thus, choosing the right property is crucial to keep your finances in order.

 
 tips to save more money when you buy a home
 

However, did anyone tell you there is one more factor that impacts your finances significantly when you purchase a house? Choosing a home loan tailored to your situation not only leads to considerable savings but also helps you own your home sooner.

Of course, a low interest rate means more savings. But today, lenders are offering several features, such as an offset account, which can help you save more. In fact, experts suggest that you sift through home loans carefully, weighing the features as well as interest rates, as it is possible to save more with these helpful features in your mortgage than subscribing for a vanilla loan with the lowest interest rate on offer.

 

Simple hacks to save more money

Considering that your mortgage repayment is probably your largest expense each month, you would be glad to know that there are simple hacks that can help you reduce the size of your repayment as well as the term.

 

Decide between fixed interest rate and variable – The debate between fixed and variable rates continues to remain a heated one. A fixed rate offers peace of mind and the freedom to plan your finances, thanks to the fixed repayment amount for a predefined period. On the other hand, a variable rate means you pay according to the market, which can fluctuate either way. However, in the current scenario, a flexible rate could be beneficial as the interest rates continue to drop.

Besides, a variable rate loan is packed with features such as a fixed number of additional repayments and redraws in a year, ensuring flexibility in your mortgage.

You can always switch to a fixed rate if you think the interest rates are going to increase. Moving from a variable rate to a fixed one is quick and easy. However, the reverse could be expensive, as prepaying or refinancing a fixed loan incurs break fees in most cases.

 

Make frequent repayments – The easiest way to save more money on your mortgage is by making an extra repayment each year.

As an example, consider a loan of $300,000 at a rate of 4.5 percent for 30 years. By making an additional repayment of $1,520.06 (your monthly repayment amount) once a year, you would save over $42,000 in interest and reduce four and a half years from the life of your loan. Use these powerful online calculators to crunch the numbers.

To ensure that you make an additional repayment each year without feeling the pinch, choose to make fortnightly repayments instead of paying monthly. At the end of the year, you would have made 26 fortnightly repayments or 13 full repayments.

You might not have thought about it, but even small change adds up to make a big difference to your mortgage. Only by adding $10 to your minimum monthly repayment in the example above, you can save $3,614.66 in interest and pay off your loan five months earlier than the stipulated term.

 

hashChing Mortgage Payment calculator
 

Cut down your LMILenders mortgage insurance adds thousands to your mortgage but also enables you to purchase a home with a low deposit. Unless you have a parental guarantee, in most cases, lenders mortgage insurance is a necessary evil lest you choose to wait as you save a 20 percent deposit to buy your home.

However, once your mortgage balance falls below 80 percent of your property’s market value, you can contact your lender to cancel the mortgage insurance, reducing hundreds of dollars from your monthly repayment amount.

 

Save interest with an offset account – Using a 100 percent offset account linked to your mortgage to keep your savings will reduce the amount of interest you pay significantly.

In principle, every single dollar you keep in the offset account is deducted from the principal, and the interest you pay on your mortgage is calculated on this reduced amount. (Click here for tips to save more with an offset account.)

In the example above, if you have $25,000 in your offset account, you would only pay interest on $275,000 (i.e. $25,000 subtracted from the principal amount of $300,000). In general, your savings depend on the amount you keep in your offset account at any time.

 

Refinance to a lower interest rate – It is evident that refinancing your mortgage to a lower interest rate brings down your monthly repayments, saving you money in interest. However, there are costs associated with refinancing and it is essential to determine your break-even point before refinancing.

In the example that we have considered throughout this article, by switching to a rate that is only a few basis points lower – say 4.20 percent instead of 4.50 percent – you can reduce your monthly repayment amount by $53 and save over $19,000 over the life of the loan. Use this mortgage repayment calculator to determine your savings.
 


Take action now

Apart from planning your finances better, considering the low interest rates currently on offer, you can always find yourself a better home loan deal by comparing mortgage rates on an online platform such as HashChing. You can browse fresh and refinancing home loan deals from over 60 lenders including the big four banks. Besides, our website also lets you pose your questions to verified mortgage brokers who can assess your situation professionally and recommend tailored home loan solutions for your need. Get in touch with an expert here.

 

By Vidhu Bajaj,
HashChing Content Writer

 

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