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How to reduce your mortgage repayments
A home loan typically lasts for 25-30 years – a considerable period during which your personal or financial situation could change. A significant life event, such as the loss of a job or a loved one, or just a change in circumstances, could lead to you struggling to repay your mortgage. If you need to reduce your mortgage repayments, discuss your circumstances with your lender and see how they can help you. Even if the options are only short-term, they will help ease the pressure and give you some flexibility to get your finances back on track.
3 ways to reduce your mortgage repayments
1. Mortgage restructuring to reduce home loan repayments
If you’re finding it difficult to make ends meet and are worried you won’t be able to make your mortgage repayments, you should speak to your lender. You can discuss restructuring your mortgage to avoid defaulting on your loan.
When you’re open and honest with your lender about your financial troubles and your plan to get back on track, the lender may agree to renegotiate the terms of your loan. They might reduce your repayments to an amount you can realistically afford or allow you a repayment holiday for a few months.
However, restructuring your mortgage like this isn’t going to reduce your debt. You’ll still owe the repayments you defer, and you might end up paying more in total interest if the lender decides to increase your loan term to reduce your mortgage repayments. It’s just a temporary solution to help you get through tough times without defaulting on your mortgage.
2. Refinancing your home loan to reduce home loan repayments
If you’ve been repaying your home loan for a while, it may no longer be as competitive as the others in the market. This means you may want to consider refinancing to a new home loan product with a lower interest rate and/or fees.
Switching to a lower interest rate can help you reduce your monthly repayments (you can use an online calculator to get an idea of your savings). One thing to be careful of when refinancing is extending your loan term. A longer loan term could see you paying more in interest over the life of the loan despite a lower interest rate.
If you’re considering refinancing, it’s worth comparing home loans from different lenders to find the most competitive deal. Besides the interest rate charged on the loan, there are other fees associated with refinancing, such as application fees or exit fees if you break a fixed rate home loan.
Different lenders may charge you different types of fees, and it’s important to be aware of these when calculating the cost of switching. One way to help you manage these costs is to calculate how many months it will take to recoup these costs with your reduced mortgage repayments from your new loan.
3. Asking your lender for a discount
You might also consider talking to your lender before refinancing to see if you can negotiate a lower rate on your current home loan. If you find your lender is charging you a higher interest rate than new customers, you could ask them for a lower rate or ask your mortgage broker to negotiate on your behalf. If you’ve always made timely repayments, your lender will likely not want to lose your business and may agree to give you an interest rate discount or offer to waive fees. If not, you can then investigate switching lenders. Still, it’s worth checking that the cost of refinancing doesn’t outweigh any savings you may make.
Lenders may also provide special discounts to professionals like doctors, lawyers and accountants, who typically have stable jobs and high incomes due to the critical nature of their jobs. If you belong to any of these professions, it may help you negotiate an interest rate discount with your lender (or while refinancing) to potentially reduce your monthly repayments.
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Product database updated 14 May, 2024
