Servicing a mortgage is generally a decades long, costly process. Home loans typically last for 25-30 years. Reducing your mortgage repayments can potentially save you thousands of dollars over the life of your loan.
There are many reasons you may want to lower your mortgage repayments - your household budget may be vulnerable to mortgage stress, your personal financial situation may have changed (i.e. job loss, redundancy, pregnancy, income reduction) or you simply want to seek out the best possible deal.
You can tackle this issue in a number of ways but the first thing to do is to extensively research the different options that are available. Understanding your choices and alternatives can provide a solid foundation from which to seek out the best opportunity. Arming yourself with the relevant information means you’ll be better prepared to engage in financial negotiations with lenders.
Negotiate with your lender to reduce repayments
After you’ve done your research it may be advantageous to reach out to your current lender to see if they’re willing to negotiate a lower rate on your existing home loan. If your lender is charging you a higher interest rate than that of new customers, you could request a lower rate.
If you have a good credit score and always make timely repayments, your lender may not want to lose your business and might offer you an interest rate discount or perhaps waive some fees.
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 work. 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.
If this process seems overwhelming, you could enlist the services of a mortgage broker to negotiate on your behalf.
If you’re struggling financially, you may want to inquire with your lender about extending the term of your home loan. While most lenders offer 20 to 30 years mortgages, you can find lengthier terms. The longer your home loan, the less you’ll pay per month in principal and interest repayments.
Although you'll make lower repayments, your total interest charges over the life of the loan may drastically increase, as can be seen in the table below.
Term | Monthly repayment | Change if you increase loan term | Total interest payable over life of loan | Change in interest costs if you increase loan term | ||
25 years | 30 years | 25 years | 30 years | |||
15 yrs | $4,249 | -$994 | -$1,216 | $247,925 | +$190,905 | +$294,503 |
20 yrs | $3,614 | -$359 | -$581 | $340,541 | +$98,288 | +$201,886 |
25 yrs | $3,255 | -$222 | $438,829 | +$103,598 | ||
30 yrs | $3,033 | $542,427 |
RateCity calculations assume an average existing customer with a loan balance of $500k and a variable rate of 6.11% after nine interest rate hikes, plus Westpac's cash rate forecast.
Before committing to a new arrangement, remember to investigate all options to ensure you’re getting the best deal.
Refinancing to lower mortgage repayments
If you’ve managed to build up some equity in your property, you may be in a position to refinance your home loan with another lender, who may charge a lower interest rate, thus allowing you to possibly make lower repayments and relieve some pressure on your budget.
If you think that you’re paying too much for your current home loan, or if you are currently in mortgage stress, it may be worth considering refinancing. The interest rate, ongoing fees, features and benefits offered by another lender may better suit your personal goals and financial needs, now and in the future.
You could also score cashback offers but you’ll want to be sure that the interest rate and other features are competitive before refinancing. If you take a cashback deal consider using it to pay down your debt.