How to make your mortgage work better (and harder) for you
For most of us, there’s nothing we spend more on each month than our mortgage. So there’s never a month where it’s not worth asking: “Could I be doing better? Could I be getting closer to paying it off? Could I be paying a bit less in interest?” Here are our top tips for making sure you’re putting the least in and getting the most out.
Push your bank a bit harder
It’s always worth bearing in mind that banks don’t usually do as good a deal on home loans as they could for one very important reason: they don’t need to. If you push a bit harder they will, but most people don’t. Here’s what you can do to get a better deal, according to Scott Pate of the Barefoot Investor:
Don’t get seduced by fancy extras
Things like repayment holidays and special features may look appealing but there’s a good chance they actually seduce you into paying for things you won’t use much, if at all.
Fixed rates might look good, but they may shut you out of a better deal
If you want to know for sure that for the next five years you’ll be paying a certain amount then fixing your rate is worth it, but what if you see a better deal six months from now? If you fixed your rate, you may not be able to move over to that deal or if you do, there may be penalties.
Push hard to get the cheapest rate possible
It may cost your bank a decent amount of money in marketing costs to replace you. That equals bargaining power. If you call and tell them you’ve applied to refinance with another bank and their rate is a certain amount cheaper than you’re currently being charged, and that you’d like them to match the offer or send you the forms you need to switch, you may well get a better rate. If they don’t match it, it may be worth saying “that’s not good enough” and ask if they would speak to their supervisor.
Sound like a hassle? It can be. But is it worth it? You bet it is. Let’s say you get them to drop your rate 0.5 per cent. Apply that to the cost of your mortgage over say 15 or 20 years and look how much that phone call will be worth to you if they come to the party. That’s some serious money, and well worth your time.
Put that foot on the accelerator and get the debt down faster
Can you find another $500 or $1000 a month to pay off your mortgage each month? Put it another way: would you like to have your mortgage paid off three or five or seven years sooner? A small amount extra each month can make real inroads into that debt. If you just make the minimum payment, that works a lot better for the lender than it does for does for you.
So what can you do to get it paid off faster?
Make higher repayments than you have to. As long as there is no penalty for doing so, top up your repayment whenever you can and add extra lump sums as you go.
Go fortnightly. Can you pay half your monthly amount each fortnight? If you can, you’ll end up making more payments for the year.
Act like you didn’t get a break. Has your interest rate dropped? Good – don’t drop your repayment level and you’ll be making more progress.
Act like you’re not doing better. Had a pay rise? Don’t live like you have, keep spending the way you were and put the rest into your mortgage.
Shrink the calendar. Can you shorten the term of your loan? If you can cope with an increase in your repayments, do it, it’ll make a big difference.