There’s a lot you can do to chip away at your home loan, beyond just making regular repayments. While working towards being mortgage-free usually means making some sacrifices – like cutting back on spending, or paying more of your income into your home loan – there are a few quick wins that aren’t quite as painful but are just as effective. Here are 5 ways to save on your home loan.
1. Fix interest rates before they rise
With the Reserve Bank of New Zealand indicating the OCR (Official Cash Rate) is expected to rise in the near future, there’s never been a better time to consider splitting your home loan into different fixed interest rate terms, to take advantage of current low interest rates.
By fixing part of your home loan for a set period of time, you’ll enjoy the benefit of immediate savings when interest rates do rise. Fixed interest rates also provide some level of security in that your repayments stay the same for a set time, making it easier to plan your budget.
2. Keep checking floating interest rates
Most homeowners keep a portion of their home loan on a floating interest rate in a revolving credit account or an offset loan account. That provides them with some flexibility with the option to redraw funds as needed. There’s also a potential saving if interest rates drop, as mortgage repayments will decrease too.
But it’s important to regularly review your mortgage and pay careful attention to any movements in the floating interest rate, to ensure you’re always getting the best interest rate available to you.
And if your fixed term interest rate is nearing the end of its term, talk to your lender or mortgage adviser about refinancing, or your loan will automatically move to a floating interest rate which is usually higher than fixed interest rates.
3. A bigger deposit
For first home buyers, saving a deposit is often the biggest hurdle to buying a first home. But, having a bigger deposit – at least 20 per cent of the property’s value - generally means you won’t be charged a low equity margin and you’ll have more room to negotiate on interest rates. Saving a bigger deposit could help you take advantage of more competitive interest rates and help you avoid paying low equity fees.
For homeowners who may already have bought a home with less than a 20 per cent deposit, consider refinancing as soon as you have more than 20 per cent equity in your home, as you may qualify for a better interest rate which could amount to a significant saving. (Be sure to weigh up the cost of any break fees if you are locked into a fixed interest rate term with the potential savings on interest rate.)
4. Take advantage of cash backs
Many lenders include a cash back for new customers, often amounting to several thousand dollars. Typically, cash backs involve agreeing to stay with a lender for a few years – usually 3 years – and if you sell or refinance and move to a new lender during that time, you may be required to refund the cash back.
If you haven’t reviewed your home loan in sometime, discuss your refinancing options with a Mortgage Express branded mortgage adviser, as it may pay to move to a new lender to take advantage of generous cash back offers available to you.
5. Get advice from an expert
Lastly, save on your home loan by finding the most suitable deal available to you in the first instance. That means shopping around and comparing lending options, or working with an expert who can shop around on your behalf.
A Mortgage Express branded mortgage adviser can help guide you to find the right home loan to fit your needs. Book a financial review of your existing home loan today, to see if there are ways you can save money on your home loan.