How can you reduce your mortgage payments?
How can you reduce mortgage payments?
Want to pay less on your mortgage? Everything depends on your current financial situation, but there is often a way forward through refinancing. The benefits of switching home loans like this are, however, a lot more specific than just paying less.
Attaining a better interest rate
Refinancing your mortgage can be a great way to secure a better interest rate. If this is what you’re looking for in the refinancing process, you would do well to remember that interest rates fluctuate constantly. What seems like the best rate now might not be best for you later, so it’s important to look at the bigger picture and discuss options with your current or future lender.
A lower interest rate means you’re paying less to borrow the money, and as such you will be required to repay smaller amounts. This is extremely helpful when it comes to your month to month budgeting – you’ll have more to spend in other areas – ultimately reducing the financial stresses on your household. The benefits aren’t limited to your regular payments either, a lower interest rate means you could save a significant amount of money over the life of the loan. Whatever the reason you want to reduce your mortgage payments, a more favourable interest rate could be the way to do it.
Extending your loan term
Refinancing your home loan will also allow you to set up a new term. You might, for example, want to move from a 20 to a 25 year term. Since you’ll be paying off the same amount of principal over a longer period of time, your regular scheduled payments will drop.
It should be noted that while the principal will be spread out across your new 25 year term, you will be paying more in interest due to the additional five years you’re borrowing for. Speak to your lender to find out how much this additional interest will be, and whether that amount is worth lowering your monthly payments for.
Changing your loan type
Does your current mortgage calculate your interest by fixed rate or variable rate? There are numerous benefits to both of these loan types, and situations that certainly warrant one over the other. But have you considered how switching from one to the other might benefit you financially?
This of course boils down to your current interest rate and how happy you are with it. If you’re willing to ride the financial wave and let the market determine your interest rate, your payments will fluctuate and will sometimes be low, other times be a bit higher. If you want consistency, it may be better to move to a fixed rate – though you should always look at how long the rate is fixed for and how it compares to interest rates elsewhere.
Things to consider before making your decision
Before you make the decision to refinance, you should find out what the exit fees are for your existing loan, and what sort of establishments fees are required to set up the new one. Discharge and deregistration fees are always required when you close down a loan, while registration and application fees are required for a new one.
It’s highly recommended you speak to your lender, an accountant or a financial advisor to determine if refinancing is the best option for you. For more information on refinancing your home loan with Beyond Bank, get in touch with our expert team today.