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According to a news report, Australian households owe debts equal to 125% of GDP, as combined investor and owner-occupier outstanding loan value sums to a mighty $1.6 trillion (rising from $1.2 trillion over the past 5 years).

As per another report published in December 2015 by NATSEM, the ratio of household debt to disposable income has increased 3 times over the past 25 years.

mortgage-debtWhether this increase in household debt is sustainable or not is a question that only time will answer. However, it is a no brainer that Australia’s household debt is on a continual rise, fuelled by RBA’s stand to maintain exceptionally low interest rates, increasing house prices and Australia’s love for purchasing property.

However, do you really want to reel under debt for the next 25 years or you’d rather pay off your mortgage faster by following some simple tips and actually ‘OWN’ your home for real?

Here are some tips to reduce your mortgage debt quickly:

1. Frequent payments – While making repayments on time will ensure your debt stays on track, paying more frequently (say fortnightly) can cut years and interest off your loan without feeling the pinch. Use this extra repayments calculator to see the difference.

2. Plan budget – Planning a household budget is the first step towards financial freedom. Make a budget using this handy budget calculator by taking into account all your incomings and expenditure to know how much you really need to spend. Cut down on the frills and use your savings for making lumpsum payments to reduce your debt faster. Our lumpsum payment calculator can help you calculate the magic.

3. Start an emergency fund – While you plan a budget, save some for a rainy day every month. Build an emergency fund that is liquid in nature to cover at least 6 months of mortgage repayments in case of an emergency such as illness, personal distress or loss of job.

If you are finding it difficult to pay for basic necessities and are unable to pay off your debts, seek financial hardship assistance to get your finances back on track.

4. Mortgage offset account – A mortgage offset account is one of the top features you need in a home loan. A 100% offset account linked to your home loan can save thousands over the life of your loan, as the money held in the account is offset against the outstanding debt for calculating interest payments. Receive your salary in the same account for max benefit.

5. Split your loan – Fixing a part of your loan can help you take advantage of the current low rates as well as plan your finances better. Splitting your home loan into fixed and variable is an easy way to have the best of both the worlds – the current rates as well as future lows. Use the split loan calculator to see how much you can save my splitting your loan.

6. Go for lower interest rates – Refinancing to a lower interest rate can help reduce your debt faster. By moving to a lower rate and not reducing the amount of repayments, you are effectively paying extra every month inching towards your financial freedom rapidly. Choose the lowest possible rates in the market by comparing broker pre-negotiated rates on HashChing.

7. Consolidate your debts – Consolidating your high interest rate credit card debt or personal debt with your home loan by refinancing to a more competitive home loan deal is an efficient way to pay off all your debts and ensure you pay them off faster.

8. Use of Equity – Use equity in your home for adding value to the property through renovations or fund another investment property using equity as deposit. Most lenders will allow you to borrow up to 80% of equity in your home, helping you fund an investment property whose rent can service one of the mortgage repayments. However, ensure you can afford two mortgage repayments every month when your investment property is vacant.

9. Having a larger deposit – Most lenders demand 20% deposit though they would lend more if you pay Lender’s Mortgage Insurance (LMI). Having at least 20% of the property value as deposit ensures you borrow less as well as save the LMI premium that can run into tens of thousands.

10. Ask your lender – It never hurts to ask – so ask your lender if they can offer you a better deal than what you have currently. Lenders prefer retaining existing customers as the cost of acquiring new customers is much more and the mortgage industry is highly competitive. It is a good idea to know what rate and features your lender is offering to new borrowers and if they can offer the same to you.

In case you are looking for a home loan, getting in touch with a broker can save you precious time and money. Brokers mostly offer better rates than lender advertised ones and some of them even pass on the commission to their clients. Expert brokers at HashChing are happy to guide you; receive answers to your home loan queries online, absolutely free of cost at HashChing.

By Vidhu Bajaj

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HashChing is helping Australians by providing access to the pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.