Improving Home Loan Affordability

Reduce Mortgage Payments & Home Loan Terms

For most Australians, buying a home is not just one of the most significant financial investments they’ll ever make, but it’s also a significant milestone in their lives. Unfortunately, high-interest rates on mortgages can significantly increase the overall cost of homeownership, and are making the possibility of finding a home harder and harder. However, there are various strategies that savvy borrowers can use to lessen the impact of these high rates by reducing their weekly or monthly payment, or reducing the overall duration of their mortgage.

We’ll be exploring ways to reduce mortgage payments, including adjusting payment frequency and amount, refinancing, and using an off-set account can help save homeowners and prospective buyers money.

Understanding the Impact of High-Interest Rates

For some homeowners who secured fixed rate home loans when interest rates were at the lowest ever rate, they are yet to feel the full impact of rate rises in 2023 that hit an 11-year high. However, for homeowners that are coming out of a fixed rate and are switching to a variable rate, they are facing massive increases in weekly repayments that can be hundreds of dollars more expensive each week. 

For prospective home buyers who are currently in the market, they will have noticed a significant dip in their borrowing capacity, as housing affordability is at the lowest in 30 years due to the combination of increased rates and skyrocketing house prices. Renters also cannot escape the impact of high-interest rates, as the impact also means that there are fewer cheap rentals available, which, when coupled with a dwindling supply, makes it very difficult to find an affordable solution. 

 

Ways To Reduce Mortgage Payments

Fortunately, there are a number of ways to reduce mortgage payments that can lessen the impact of interest rate increases, from using an offset account, to adjusting payments, to refinancing.

Offset Account

For homeowners with a mortgage, an offset account or offset mortgage is a financial product that reduces the interest rate on repayments made, which can help buyers to reduce payments, or reduce the duration of their loan. An offset account uses a homeowners savings to offset by removing interest against the total outstanding mortgage balance. Unlike a traditional savings account that pays the account holder interest, an offset account does not offer interest, instead, it removes interest from the loan being repaid. Using an offset account, the amount of interest you pay on your mortgage is calculated by removing your savings balance from your outstanding balance, which can result in significant savings. If you had $20,000 in savings and $200,000 outstanding in your loan, the offset means you only pay interest on $180,000, reducing the amount you repay. 

Offset accounts can be used just like a normal bank account, which means you can access your savings or use them to make regular mortgage payments, which can help to further reduce your interest payments. By reducing the amount of interest being added to your loan, you can reduce the amount of your weekly or monthly repayment, or you can continue paying the same amount as you did before, which would result in a shorter repayment time frame. However, for savvy investors, it’s worth noting that the money saved from interest on the loan may have earned a greater yield in another investment, so it’s worth speaking to a financial advisor beforehand.

 

Payment Frequency

Depending on how frequently you make mortgage payments, you can lessen the impact of high-interest rates by changing how and when you pay. By switching to a bi-weekly or weekly payment schedule from a monthly payment schedule, homeowners can repay their mortgages faster as mortgage interest is accrued daily. Unlike an offset account, you cannot reduce the amount you will repay each month, but you can reduce the overall term of your mortgage, which will result in you paying less interest over time. In a cost of living crisis, it can be difficult to spare additional funds to lower your mortgage, however making additional payments can significantly increase the cost of what you will be repaying.

 

Refinancing

Refinancing your mortgage involves replacing your current mortgage with a new one, typically at a lower interest rate. For buyers who are still repaying on a fixed term basis, it is likely that refinancing may be less cost-effective, however for those that are paying a variable rate, it is one of a few effective ways to reduce mortgage payments, as it can offer a lower interest rate, or shorten the loan term. It is imperative that you speak with a financial advisor if you are considering remortgaging your property, as it can result in you paying more if the terms of the new mortgage are not favourable. 

The cost of living crisis is being felt by most, and the high-interest rates at the moment are making mortgage repayments harder than ever for homeowners on a variable home loan. However, there are a number of ways to reduce mortgage payments, and by making use of an offset account, changing payment frequency, or remortgaging your property, you may be able to lower your weekly, bi-weekly, or monthly repayment, or reduce the overall length of your home loan. A one-size-fits-all approach doesn’t work for all when it comes to mortgage repayments, so it’s best to speak with a qualified financial advisor or mortgage professional to help guide you to make the best decision.

 

About Rose & Jones

Rose & Jones has been helping clients find and purchase properties in Sydney, Brisbane, and the Northern Rivers since 1998. A renowned property buyer’s agency across residential, commercial and industrial sectors, every one of our property experts meets our high standards, so you won’t have to compromise yours. With access to a wide network of off market properties, our team can help you find the perfect property. Also offering property management services and investment advice, make Rose & Jones your go-to when it comes to real estate in New South Wales and Queensland. 

If you are ready to find your next property or just need advice, get in touch with the knowledgeable team at Rose & Jones.

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