With many people feeling the financial strain during these troubling times it is becoming more important to find ways to reduce your expenses and save more. If you own a home, there are a number of things you can do to reduce the costs of your home loan both in the short and long term. If you have not reviewed your mortgage in a while now is a great time with many lenders lowering their interest rates and numerous government schemes.
Can refinancing to a lower rate cut your repayments?
It can, if a lower rate is actually available to you and the cost of switching is smaller than the saving. A broker can review your current loan against what is on offer. The size of any saving depends on your balance, your rate and how long you have left.
If you refinance your home loan you have the potential to refinance to a home loan with a significantly lower interest rate, potentially saving you thousands in monthly repayments and interest. A mortgage broker can help you review your current mortgage and determine which home loans will save you the most amount of money.
Does extending your loan term reduce repayments?
Yes, and it costs you. Stretching the term by refinancing spreads the same balance over more years, so each monthly repayment is smaller. You also pay interest for longer, which raises the total cost of the loan. It buys breathing room, not a saving.
If you are finding it hard to get together funds to make monthly repayments it is possible to reduce your monthly repayments by restructuring your home loan. By extending the length of your loan term by refinancing you are able to reduce the amount of your monthly repayments.
What is a hardship variation?
A short-term arrangement with your lender when you cannot meet repayments. It can mean deferring repayments or changing them for a set period. Lenders generally prefer this to a default, but it is temporary and the debt does not go away, so ask what happens when the period ends.
Generally, your lender will want to help you pay off your loan so they will often allow you to apply for a hardship variation which is designed to ease some of the financial pressure in the short term. This can include deferring repayments, freezing interest or even allowing partial repayments. These are great options if your income has been significantly reduced and you are struggling to meet your repayments as a result.
Should you switch to an interest only mortgage?
It lowers repayments now because you only cover the interest, with the principal deferred for up to five years. When that period ends, repayments step up, because the same balance has to be cleared over a shorter remaining term. Useful for cash flow, expensive over the life of the loan.
Interest only loans have a smaller financial burden initially as you only need to repay the interest on the loan, while the repayment for the principal is delayed for up to 5 years The downside is that after the initial interest only period you will have to pay significantly more than a standard home loan. However, they are a great option to give you some breathing room if you are currently experiencing financial difficulty.
These are solid options that can help you reduce your mortgage expenses and help you save more overall or can help if you are in need of greater cash flow.
If you would like to learn more about saving money on your home loan and ways to reduce costs, please get in touch with us today.