Get a lower interest rate, find a loan with fewer fees—and more
What is a mortgage repayment?
A mortgage repayment is when you repay a home loan usually one month at a time, plus some interest each month, on the full amount that you borrowed from a lender. So long as you reach your monthly payments, you are sure to have repaid the whole mortgage loan by the end of the mortgage term. Typically, this will be roughly 25 years. Currently, mortgage repayments are the most standard form of mortgage.
How does it work?
Starting out, a larger portion of your monthly mortgage repayments go to paying off the interest, with a smaller amount going toward the capital. Over time, the balance between paying interest and capital will shift and you will end up paying more toward your loan.
How can you lower your repayments?
To lower your repayments, consider the following options:
Get a lower interest rate. It is logical to look for new interest rates since rates are currently very low. Doing so will mean lower monthly repayments for you. It’s important to note also that over time, you could enjoy large interest savings just from a small rate reduction alone. You can begin this process by figuring out what your current lender is offering to new customers—then request your lender match that rate.
Refinance and reduce your monthly repayment amount. Another option if you are struggling financially is to reduce your monthly repayment amount, which would more often than not extend your loan repayment term. Approach with caution, however, and be sure to deal with an experienced financial advisor, because by taking this route you are not necessarily saving and may pay much more interest over a longer period.
Interest only repayments can free up cashflow. This form of mortgage repayment structure makes the most sense for property investors, since it means you only end up paying off the interest that accumulates on top of your loan balance (and not reducing the principal). It is not the best route for everyone; there are, however, tax incentives for investors.
Find a loan with fewer fees. Fees can widely vary between individual home loan products and lenders. Some home loans, for instance, have zero fees while others have maintenance fees charged annually or monthly. For whatever account maintenance may be required, some lenders charge more on interest rates. This is a good reminder to decide if the benefits are greater than the fees.
Check if a split rate reduces your repayments. If you want to combine the best aspects of a fixed-rate home loan and a variable-rate home loan, then a split-rate mortgage is your best choice. You should consider refinancing to a split-rate loan to lower your interest rate on the variable side of your mortgage. And since interest rates are currently lower, you can fix a portion of your loan to make it unaffected when rates rise. In other words, you will have stability and flexibility.
What to do if you are struggling to meet repayments
Lowering your repayments as much as possible can be a decent option if you are struggling financially. If that is not enough to help get you above water financially, you will likely need to seek out alternatives to avoid possibly destroying your credit history and losing your home. The following may help you in solving that problem:
Ask your lender for a repayment freeze. Your first move should be contacting your lender, which might be able to freeze your repayments until you become more financially stable. Otherwise known as a repayment holiday, repayment freezes have been available especially throughout the COVID-19 pandemic, but similar arrangements are available to customers who are struggling financially in non-COVID times as well.
Contact your lender’s hardship team. Typically, a lender will have something called a financial hardship assistance team to help any of their clients who are struggling financially reach an agreement. Since a paying customer is usually more valuable to lenders than a home that they would need to repossess and then sell, it is in most lender’s interest to assist you in this way.
Refinance to a different home loan with an even lower interest rate. Before you start missing your repayments, you could refinance to another home loan that has less interest, if possible. If you do not take this step, you could be viewed as a risky customer and it may be more difficult to make the switch. Making this call, however, might save you up to $17,000, the Australian Competition and Customer Commission (ACCC) says.
Consider accessing your super. As an absolute last resort to save your house, you could potentially access your built-up superannuation. This is a possibility in very limited circumstances. To apply, you will have to call the Australian Taxation Office, or ATO.
