When you first start paying off a mortgage, the payments can feel overwhelming. There's a big fat number you're incrementally decreasing and although you've got a (long) timeline of payments to keep you on track, the end feels miles away.
The numbers might be the biggest you’ve ever dealt with, but there are still ways to make that burden feel less heavy — and make your debt go down significantly. So if you're looking at your mortgage and aren't sure how to make it feel manageable, here are a couple of tips.
Lifehacker has partnered with Lendi to help you get on top of your mortgage — and spot some red flags you may not have even noticed on your home loan.
#1 Optimise your loan
Whether you decide to renegotiate with your current lender or take it elsewhere entirely, getting the best home loan package for your circumstances can make a huge difference in the amount you'll have to pay in interest and fees.
By refinancing, you may be able to find a different lender with a lower interest rate and fees, thus making it cost less over time. If you use a platform like Lendi, you can compare different loans across the market without leaving the comfort of your own home. You can easily find out which bank has the best rate and package to suit your set up and even get an online Approval Confidence rating so you know if a particular bank is likely to say yes to your application.
#2 Avoid interest-only loans
Paying less on your mortgage is a long game and your home loan is a 25 to 30 year commitment. If you want to save yourself serious cash over the life of your loan, don’t waste time paying interest-only.
Interest-only loans might look appealing because your monthly repayments will initially be lower but the reality is, by not reducing the amount owing during that interest-only period, you’ll get hit with higher monthly repayments once you start paying back the principal. Why? Because you’ve got less time left in the contract to pay off the total debt.
#3 Pay it off early
The longer you're paying off your mortgage, the more interest you'll have to pay. So the faster you pay down the principal, the less cash you’ll part with over time.
It may be tough to dedicate extra funds in the short term but it can pay off. Consider making extra repayments, particularly while rates are low, and dedicating any lump sum payments, like your tax return, to the loan — you'll barely notice the loss but you'll thank yourself later.
#4 Change the way your repayments work
A lot of home loans will operate on a monthly repayment scheme, but that may not always be the best method of repayment for you. Think of it this way: there are twelve months in a year, so you'll make twelve repayments using that method. But if you have the option to pay fortnightly, you'll be making 26 repayments a year.
That gives you an extra repayment than you would if you were paying monthly, and even though the repayment amount would be lower each fortnight, it pays back more over the course of the year. This allows you to pay it off far sooner.
#5 Check in on your loan regularly
In the same way that you should be regularly checking in on your power bills and insurance premiums, you should have a regular health check on the state of your mortgage too. Not only will it keep you across where your money is going, but it can also alert you to unnecessary costs.
“We help people get new loans or refinance every day and our data shows banks charge much higher interest rates to existing customers compared to what they offer on new loans,” says David Hyman, co-founder and CEO of Lendi. “It’s called the loyalty tax and it means old customers can be paying between half and nearly a full percent more on their interest rate.”
By checking in at least once a year, you can evaluate whether your payment schedule is working or whether your interest rate and loan package is still competitive. It only takes a couple of hours but could save you thousands over a year.
Also keep in mind, as you pay down your mortgage, your loan to value ratio (LVR) decreases. This makes you a more appealing customer for lenders and it’s more likely they’ll offer you lower interest rates to get or keep your business.
Ultimately, this kind of awareness is what can help you stay on top of things, recognise when changes might help you pay it off faster and negotiate. The bottom line is that mortgages don't have to feel like an insurmountable debt. With some savvy decisions and a concerted effort to remain informed, you can make mortgages much more manageable.
Disclaimer: every situation is different, so consult a professional for advice or assistance before making any financial decisions.