The whole process of taking out a home loan can be relatively tough. There's a lot of homework you need to do in assessing the best options to help you secure that perfect house you’re wanting after.
While coming up with an effective budget, finding the right lender, and beginning the process of making repayments can seem like a lot of work, it's only really the beginning. However, while that may sound a little daunting, looking after your home loan over the long term doesn't have to be too laborious.
It's merely a case of being savvy and well aware of how you can keep your mortgage maintained. To that end, what are some smart tips and tricks that can help save money? Well, here are four that you should be aware of whether you've just started paying off your loan, or are a seasoned borrower who's years into the process:
1. Be aware of deadlines, and talk to your bank
The vast majority of home loans have many clauses that have to be met if you don't want to be hit by varying degrees of penalties. For example, there's a good chance that you'll end up having to make some kind of financial sacrifice if you don't make your home loan payments on time.
Consequently, one of the best ways to save money - or at least avoid being penalised - is to ensure that the dates on which your payments need to be made are hard coded into your calendar. ANZ suggested that you should leverage online banking applications if this is something that you traditionally struggle with, as these make it easier to stick to a pre-determined schedule.
To that end, the banking giant also suggested that it's important to open a dialogue with your mortgage provider if you believe you may miss a payment, or are having any issues paying off the debt. The vast majority of banks can offer advice to make your repayments more manageable and are likely to be happy to help.
After all, it's conducive to everyone involved that your mortgage - whether you choose a variable or fixed rate home loan - is paid off effectively, so starting the conversation should be high on your list of priorities.
Staying on top of your mortgage's deadlines is the only way to avoid late payment penalties.
2. Utilise lump sum payments
Of course, there's a huge amount of budgeting that goes into planning for a home loan. While it's certainly a good thing to actively keep track of incoming and outgoing, and even alter what you can afford to repay on your mortgage each month, incremental lump sums can be even more beneficial.
Westpac explained that using any larger amount of funds towards your mortgage can ultimately allow you to pay off the loan more quickly, as well as reducing the amount of interest you have to pay back, too.
Using a specific example, paying off $15,000 of a $250,000 mortgage could reduce the length of the loan by as much as five years - and save over $20,000 in interest alone. This is based on a 7 per cent interest rate and a 30-year loan, but it certainly goes to show that there are savings to be made.
So, where can you come up with some kind of large payment? Well, one of the most common sources is through any bonuses you may receive at work.
While it's likely that you'll want to reward yourself in the event of getting a supplementary payment alongside your salary, using it to pay off your mortgage is not only more fiscally responsible, you'll be more inclined to feel the benefits in the long term.
Working out whether you can afford to make a lump sum payment on your mortgage is a must if you want to save in the long term.
3. Assess the viability of refinancing
Any calculations that you carry out at the start of your home mortgage term will be based on your financial circumstances at the time. However, while it's certainly a necessity to budget, this can mean that there won't be much room to manoeuvre if your situation changes.
A promotion at work, change of job or any vast alteration in income for the better could leave you in a suitable position to pay off your home loan more quickly. While it's perfectly possible to use the lump sum method as mentioned above, you can actually cut down the length of your home loan in certain situations.
Typically, this is done via effective refinancing. While it may seem like a drastic step, it's something that could well be worth considering if you're comfortable doing more homework on finding the right home loan, and have a stable financial footing that may not have been apparent before.
Refinancing can be tricky, but it could be well worth the effort if you're financial position has changed.
4. Play with the regularity of payments
Switching up the regularity of your payments can be an effective way to save money. While it may seem relatively obvious, even one extra payment a year can make a relatively big difference in the long term.
Typically, a single, extra repayment will come straight from your principal, and not necessarily include interest. U.S. News pointed out that when doing this - even with a modestly sized extra payment - you can essentially cut down the amount of interest you pay on that principal as it begins to decline in size.
Essentially, there's a double benefit to be unlocked if you can get into the habit of making extra payments regularly, even if it's only one or two per year.
There's a chance you could save yourself money if you make as little as one extra mortgage repayment per year.
The bottom line
As touched on in nearly all of the above, the best way to get savvy with your home loan repayments is to play the long game. It can be difficult to think about a vastly extended timeline - especially one that has the potential to span a number of decades - but it's a must if you want to get smart about your mortgage.
Keep in mind that any changes you make today, whether they're down to the regularity of payments or even refinancing all together, will benefit you tomorrow.
Ultimately, there are a heap of savings to be made by those who best understand the ins and outs of their mortgages. After all, you'll thank yourself if you can get on top of the nuances in the here and now, and provide future you with a significant number of savings.