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Understanding your mortgage repayments

Understanding your mortgage repayments

Once we have signed up for a home loan it’s the mortgage repayments, along with the new pad, that we are left to continuously fork out for. So it’s only wise that we spend a little bit of time understanding mortgage repayments to learn how to make them work for us, save us money or make us more comfortable with the structured payments. 

What are mortgage repayments?

Mortgage repayments are the amounts of money a borrower agrees to pay their financial institution to repay a home loan. They are usually made weekly, fortnightly or monthly depending on what is agreed between the lender and borrower.

Mortgage repayment frequency

Increasing the frequency of your home loan repayments – such as paying fortnightly instead of monthly, may reduce the total amount of interest you pay on the loan. But this can differ between institutions and will depend on how interest is calculated – so ask your lender. The size of a mortgage payment can be determined by a number of variables including the size of the loan, the rate of interest paid, the loan term and the repayment type – that is, interest and/or principal, among other things. 

By adjusting one or more of these, the size of the mortgage payments may be altered.

For instance, on a $300,000 mortgage and paying a rate of 6 percent over 30 years, mortgage payments may be around $1799 per month. By reducing the loan term to 25 years, home loan payments may increase by $134 each month, saving the borrower more than $67,000 in total interest.

Refinancing

Refinancing to a home loan with a lower interest rate may have a similar effect. Using the above example and switching to a lower rate of say, 5.5 percent, may seem insignificant. But on the contrary, the potential long-term savings are evident: reducing the rate of interest by 50 basis points could save a borrower more than $34,000 over 30 years.

To see how much you could potentially save on your home loan by adjusting the repayments, try using a home loans calculator. Finally, compare home loans to see if your lender is competitive with the market and if not approach them to see if they can offer you a better deal. There is never any harm in asking and if they aren’t able to give you what you want, at least you have researched what your options are elsewhere.

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