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How to pay less on your mortgage no matter when you started

December 9, 2010

Whether you're in your first year of a mortgage, you took out a home loan before the global financial crisis or you've had your variable rate for five years, there are ways to ensure you are getting the best deal and save yourself money.

First home buyers
If you've had your mortgage for less than two years and this is all quite new to you, the thought of switching your mortgage and going through the stressful process all over again is probably making you tremble at the thought - not to mention the extra upfront costs. While it could save you money down the track to switch your mortgage, there are other options that you can take now without the headache of refinancing to another lender.

What you can do is find out when your lender will next evaluate your property to see if your equity has increased, then try switching to a more suitable loan product with your current lender. This is because many first home buyers have a small deposit and are therefore more limited to their home loan choice. With more equity, you may be able to refinance within the same financial institution for a better rate.

Also compare home loans online to see what other institutions are offering and re-negotiate with your lender to see if they will reduce your rate.

Variable-rate loan
If you opened a variable rate mortgage five years ago or more, it might be time for you to give your mortgage a health check and see how it stacks up to the home loans market. You could shop around and see what other variable rates are on offer, however, if you think rates will rise soon, contemplate fixing or splitting your loan. By fixing you won't be affected by rate rises, guaranteeing regular repayments for the duration of the fixed term, allowing you to budget better.

Splitting your loan allows a portion of your loan to be fixed and the remainder variable. Most people usually split their loan in half, that way regardless of whether rates rise or fall, only 50 percent is affected and half may benefit.

Fixed-rate loan
In August 2008, before the GFC hit our shores, if you started a mortgage at the three-year fixed benchmark rate (the average of the four major banks) of 9.42 percent and have about one year left. It is a waste of time and money to exit this loan, as RateCity calculated the break cost would be around $7000 for a $300,000 loan (using the method of charging the difference between your rate and the current benchmark one-year fixed rate of 7.09 percent).

If you switched to a variable rate of 7 percent it would cost you an extra $1200 to switch from the three-year fixed rate because you only have one year left and the charges are so high.
Speak to your lender to see if they can reduce your current rate. But regardless of the outcome, at the end of the third year when your mortgage rolls over to a variable interest rate, compare home loans and see if you can find a better deal elsewhere.

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