Mortgage Strategies to Save Money

The recent increase in interest rates has had an immediate effect on many people.   It’s not just home owners and property investors who are feeling the pinch.  Personal loan, credit card and car loan interest rates have also risen.  Effective mortgage strategies might be able to help you free up some much needed funds to survive the interest rate hikes.

Debt Consolidation

Interest rates on home loans are generally much lower than those for credit cards, car or personal loans. One option to free up some cash may be to combine your other debts into your home loan, or consolidate your personal debt into a mortgage secured against your property if you have accumulated sufficient equity. This would result in lower monthly repayments over a longer period of time. Remember, it is important to at least make the minimum repayments to finally clear those annoying credit card and personal loans that you haven’t been previously able to pay off. Don’t go out and spend up on your credit card again; the debt has only been transferred to your home loan and not magically paid off. Ideally, you should cut up your cards, or at the very least reduce the credit limits on them, especially if you had difficulty paying them off previously. The best advice is to try and maintain the living costs you had before consolidating your debt, make extra repayments to reduce the overall debt and pay your loan off more quickly.

Loan Variation

If you have had an existing mortgage for a while and have greatly reduced the balance owing, you may want to consider conducting a loan variation with your lender in order to free up some day-to-day money.  A loan variation is simply making a change in your existing mortgage, as opposed to a refinance where you would be taking a completely new mortgage.  if you varied the balance of your loan to 30 years, your monthly repayments would be less.  This is because you now have longer to pay your remaining debt, whereas the previous repayments would have been calculated based on the initial higher loan amount.  You could also vary the loan product to one with a lower interest rate, or vary from a principal and interest to a interest only loan, which free up some cash every month.  However, it is important to know that you are merely servicing the interest on an interest only loan and not actually paying it off.  Most lenders charge a fee to conduct a loan variation.

Refinance

The benefits of refinancing are as much the same as for debt consolidation and loan variation.  Ask one of our mortgage brokers to calculate how much money you will save in repayments on a monthly basis if you refinance to a new lender and also work out how long it will take you to see an overall saving once you have included your refinancing costs into the equation.

Managing Personal Crisis

Lowering the interest rate and extending the term on the loan are two ways to reduce the monthly payments on your home loan. Credit card debt can be especially insidious, since there’s no fixed repayment schedule. Once it’s reached the point where you can’t do any more than make the minimum payments, it becomes very difficult to turn things around.

If you have equity in your home, a home equity loan is often the best solution for debt consolidation. Don’t confuse a home equity loan with a line of credit. A home equity loan is a term loan where you make regular payments to reduce the loan balance. A line of credit, however, is a non reducing facility, where you are only required to service the interest.