Home loan repayments could be a consistent annoyance and challenge to many home owners. While you'll eventually need to pay back the entirety of the loan amount, there are some ways you could use to make it easier to keep up with repaying your mortgage.
1. Honeymoon Rates "Honeymoon Rates" are offered by lenders and used as a marketing tool for attracting borrowers. Lenders will basically grant a lower rate of interest for the initial period (usually six months to one year). After such time, the rate goes back to the standard variable rate of a certain financial institution.
Such type of system appeals to those who plan to attack the loan early by making additional payments in the first months to help reduce the principal. Honeymoon rates can be tempting, but you should be aware of exclusions or restrictions on other aspects of the home loan. Many lenders limit the available features in order to offset the cheaper interest rate. This could result in higher charges or limited flexibility over the term of the home loan.
2. Debt Consolidation If there's an upsurge in interest rates on your home loan, it is guaranteed that personal loan and credit card rates will also rise. This could be crippling, as the interest rates on your personal loan and credit cards are often a lot higher compared to the interest rate on your mortgage. To alleviate such more expensive repayments, many lenders will let you refinance or consolidate all of your debt under your home loan; meaning, instead of you paying up to 20 per cent p.a. on your personal loan or credit card, you could transfer these debts to your mortgage and repay them at the current variable rates which are generally around 7.25 per cent to 7.5 per cent p.a.
3. Extra Repayments Whatever your decision is regarding your home loan, consider the advantages you could get through extra payments. For example, you have a loan of $200,000 at 7.50 per cent p.a that requires a minimum repayment of $2, 500 each month over $30 years.
By paying extra $150 per month (that is just $37.50 per week), you'll see the loan paid off several years earlier with an interest saving of around $40,000. Even if you cannot make additional repayments, making weekly or biweekly payments instead of monthly will likewise reduce loan term and interest costs.
Whether you decide to make regular payments or irregular one-time payments whenever you have extra funds, the financial benefits could be considerable; and also, you will become debt free a lot sooner.
4. Refinance into a Shorter-Range Mortgage
For instance, if you have a 30-year, $250,000 home loan five years ago with a 6.5% interest rate, your interest and principal payment per month is $1,580. But you have found out that nowadays, you could lower your interest rate to 4.5% if you refinance to a 15 years. While doing so will make your monthly payment to $1,850. If you're able to absorb the extra $270 per month, you will pay off your loan twice as fast (in 15 years rather than 30 years).
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