Building a home is one of the most exciting times in life. It’s a chance to lay down a new foundation and to express yourself in a place that truly belongs to you. However, it can also be a daunting task when you begin to consider mortgage repayments.
Home loan repayments are a leading cause of financial stress across Australia, with the average mortgage debt being around $400,000 – but in some parts of the country, it’s even harder. Finding a way to manage your mortgage repayments will therefore bring you a good deal of relief.
Here’s what we recommend you do if you’re looking to make your house repayments less stressful.
Figure Out What You Can Afford Before You Take Out A Loan
Before even taking out a home loan, it’s important to understand your borrowing capacity. For example, there’s no point in taking out a $700,000 mortgage if you cannot afford to repay the loan in the first place. Using a mortgage calculator or speaking to an expert and gaining pre-approval of a loan is advised in this situation, as it gives you an idea of what you can afford, meaning you won’t be borrowing above your means.
Looking for ways to save even further? Here’s a list of all the grants available to first-time homeowners in Queensland.
Open An Offset Account
An offset account can be hugely beneficial when it comes to making home loan repayments manageable in the long term. It acts as a savings or transaction account and is directly linked to your mortgage, meaning that the balance of your offset account reduces the amount owed on your mortgage. This in turn reduces the amount of interest paid and helps you pay off your loan faster.
For example, if you have a $500,000 home loan and $15,000 in your offset account, you will only be charged interest on $475,000 instead of the full price of the loan.
Switch To Fortnightly Repayments
There’s a lot of maths to do here, but switching your mortgage repayments to fortnightly can save you a huge amount of money over the life of the loan. This is because, by paying half the monthly amount every two weeks, you will be making the equivalent of an extra month’s repayment every year, since every year has 26 fortnights. Over 25 or 30 years, these savings can really add up!
Make Extra Payments
By putting your yearly tax return into your mortgage repayments or paying a little extra every month, you can potentially save thousands of dollars in interest. Making these additional repayments will also put up a buffer if interest rates happen to rise in the future.
Negotiate A Lower Interest Rate
It’s worth hunting around and comparing the interest rates on similar home loans to yours every so often. If you happen to find a better rate elsewhere, you can speak to your current lender and possibly negotiate better terms – they may even match the cheaper alternative.
If you choose to refinance your mortgage or switch lenders, be sure to weigh the benefits against the fees you may incur for closing your current loan and applying for a new one.
Draw Up A Budget
This is an obvious action that can help you set aside money appropriately, so you aren’t left short at the end of your pay cycle. Creating a budget can help you understand where your money is going and how much you should be setting aside from each paycheque to meet your house repayments. Also make sure to write up your budget based on your pay cycle – if you’re paid weekly, budget for a week. If you’re paid monthly, budget for the entire month.
With these tricks up your sleeve, you’ll be well on your way to managing your mortgage repayments. If you’d like to know more about choosing the right home loan, check out our guide to choosing the right loan for you.