Mortgage payments, for many of us, are the biggest single monthly expense we have. They take up a huge chunk of our budget, and we pay them for decades. As a result, it’s not surprising that lots of people are pretty keen to keep their mortgage payments as low as possible.
It’s hard to substantially bring down your mortgage payments without refinancing your home. However, there are several steps you can take to make your payments more manageable. In this article, we’ll take a look at some of the options available.
How To Reduce Your Mortgage Payments
Ask For a Lower Interest Rate
OK… so this one doesn’t always work. In fact, it often doesn’t work. But there’s also no harm in simply asking your lender if it’s possible to get a lower interest rate on your loan. If they do agree, this can make a real impact on your loan payments, and there’s nothing to lose.
Ask To Switch To Minimum Repayments
If interest rates are currently lower than they were when you got your mortgage, your lender might allow you to switch to minimum repayments. Be warned, though, this could extend the duration of your mortgage by quite a bit and result in paying more interest in the long run.
Open an Offset Account
An offset account is a way of reducing the interest payments on your home loan. It’s essentially a bank account linked to your mortgage. If you keep money in the offset account it will reduce the amount of interest you owe on your mortgage, bringing your monthly payments down.
It may be worth discussing with your lender, but be aware that offset accounts usually come with monthly fees.
Extend Your Loan Term
If you extend the term of your loan it’s usually possible to pay less each month. This option is worth considering if your short-term finances are tight and you don’t mind spending longer locked into your mortgage. However, this will result in paying more interest over the course of the loan.
Switch To Interest-Only Repayments
With a mortgage, your monthly payment typically includes both a contribution to the principal (the amount of the loan) combined with an interest payment. If your finances are tight — for example, if you’re likely to be unemployed for a while — your lender might agree to let you pay only the interest for a certain period of time.
This approach usually isn’t recommended for homeowners, just for people who buy property as an investment. One side effect is that you’ll have to make higher repayments after the interest-only period ends.
Apply For a Hardship Variation
Every lender has experienced a borrower who has run into financial hardship. For this reason, lenders have options prepared for when you’re no longer able to meet the original conditions of your mortgage.
One such option is called a hardship variation, sometimes also known as a mortgage modification. Essentially this is where your lender agrees to change the terms of your loan to something more affordable for you. They may also agree to temporarily reduce or even pause your payments.
This is one case where you’ll need to spend some time talking to your lender. You’ll need to explain why you’re facing difficulties with repayment and how much you think you can realistically afford to pay.
A hardship variation is not something to consider lightly. You should only take this option if you’re in truly tough circumstances, and you’ll be required to prove to your lender that you really need it.
Work With a Good Broker
When making any decision regarding your finances — especially something as significant as a mortgage — you should always work with a professional. A good mortgage broker can help you not only find the best loan from the very beginning (avoiding any future issues) but also guide you through the process and give you valuable advice.
At Lynam Home Loans, we have many years of experience helping people apply for and secure home loans with the very best terms for them. We work with lenders throughout Australia and can help you through every step of the process and any challenges you encounter.
Contact us to find out more.
