Mortgage stress is forever increasing in the Sydney area. Most mortgages now depend on multiple sources of income and some families are finding it tougher to get ahead.
We have compiled a few tips to assist you in either reducing that stress or even saving you money in the long run. Remember, ultimately you should seek financial advice from a professional and make your own decision based on your personal circumstances.
ALIGN YOUR PAYMENT FREQUENCY
Most people pay their mortgage monthly regardless of their work pay frequency. It may be easier for you to track your budget if you pay the mortgage weekly or fortnightly.
Also, there are 26 fortnights in a year but only 12 months. So if you scheduled your loan payment every fortnight you would effectively pay the equivalent of 13 months every year. This could actually save you years off your mortgage.
LOW INTEREST RATES
Interest rates are at all-time lows. Banks and lenders are offering some extremely competitive packages and rates to homeowners looking to refinance.
Be sure to check the current rate you are paying and make sure it is the same as the rate your lender is offering to new customers. Make the phone call to your lender and ask them to re-asses your rate.
If they lower it great, if they don’t it may be time to look at another product. Over the term of a loan even a quarter of a percent difference will mean thousands of dollars.
INCREASE YOUR REPAYMENTS
The cost of living is increasing rapidly in Sydney, so finding that extra chunk of funds to put off your mortgage isn’t always possible.
But what about an extra $20 a week, if that is possible you should do it. It may not seem like a lot of money but over time this can substantially shorten your loan term.
Every little bit helps when it comes to increasing your repayments. Whilst rates are low it is a great time to pay off any extra you have, that way when rates increase your principal amount has reduced and will offset some of the burden.
Most home loans have an option to add an offset account for a small fee.
An offset account is basically a savings or transaction account that works along side your home loan. The main advantage is that the funds available in the offset account are deducted from the principal amount of the loan when calculating interest.
For example, if you owed $450,000 on your mortgage and had a $10,000 offset available balance you would only be charged interest on $440,000.
With savings and term interest rates so low at the moment, you may find a higher benefit in using those funds to offset your mortgage interest.
This also means that by simply offsetting the amount of interest being paid, rather than earning interest you will not have to pay any interest, as it is not earned, only offset.
You should speak to a mortgage broker or financial advisor to work out your best scenario, but it is a good idea to regularly check your banking products.
Written by Mark Noble of McDonald Partners Real Estate
You can contact Mark on 02 9525 8066