17 Apr Four Simple Ways to Cut Your Loan Repayments
With the economy in Australia now in semi-shutdown thanks to the unprecedented social distancing measure on the back of COVID-19, it’s an important time to get your financial situation in order – particularly if you have a home loan.
For a raft of industries including tourism, entertainment, travel and retail amongst many others, it can be a tricky time to navigate. Fortunately, there are a number of steps you can take to help ease the financial pressure and cut your weekly mortgage payments.
In a win for all Australian homeowners, the RBA has taken an aggressive approach to the current situation and has cut the official cash rate to a record low 0.25 per cent. So now might just be the best time to take a look at your loan repayments and schedule a call with a good mortgage broker in Melbourne.
Top 4 Ways to Reduce Your Loan Repayments
In truth, even if you are in a very strong financial position, you need to be talking to a good mortgage broker, because you are very likely paying too much for your home loan each week.
The fastest way to cut your weekly mortgage payments is to simply refinance to a cheaper interest rate. At the moment, a lot of lenders have introductory rates for new loans that are very low, with many in the low 2s. These interest rates are so low that we might not see them again for another 50 years.
For homeowners in Melbourne, who quite likely have significant loan balances, you can quickly and cheaply shave off hundreds of dollars per week, just by refinancing. So regardless of whether your job or business is being directly impacted by COVID-19 it’s well worth your time to have a discussion with your mortgage broker in Melbourne.
Changing to an Interest Only Loan
For the vast majority of owner-occupiers and certainly first home buyers, it’s highly likely you’ll be paying both principal and interest off your home loan.
By making the switch the interest-only payments, you’ll be able to cut down the overall weekly or monthly payment you’re making. Interest-only home loans are generally only for period of five years and will then revert back to both principal and interest.
In the short-term, it will save you money on your payments, but obviously you won’t be making any headway into paying off the outstanding debt. But if your job is impacted or you want to stockpile some spare cash, this is a good option to ride out the current situation. Speak to a good mortgage broker in Melbourne to assess your options.
Extend The Loan Term
Another strategy to consider to reduce your repayments is to extend the term of the loan. But restructuring or refinancing, you’ll be effectively taking out another 30-year term for example and that will reduce your weekly or monthly repayments.
In this scenario, you will likely end up paying more interest as the term has been extended, but once the dust settles on the current crisis and things get back to normal, you can easily refinance or just make additional repayments. Again to see if this is a situation that will benefit you and your situation, speak to a good mortgage broker in Melbourne.
A Mortgage Holiday
Given the unprecedented nature of the current situation, the Federal Government and the major banks all understand that there will be people who are going to be negatively affected.
An option for those who are impacted most of all is to take a mortgage holiday, which is effectively just hitting pause on your loan payments for a period of 3-6 months.
It’s important to note here that this is not something that will automatically be applied to your loan and you’ll need to speak directly to your lender or your mortgage broker. It’s a far better option to get on the front foot and have a conversation with your lender, then get behind on your repayments.
We should also note that if you take this option, your credit score won’t be hurt at all as this is not really a normal situation and APRA has said as much.
But before you take up the option of a mortgage holiday, speak to a good mortgage broker in Melbourne like Aspirus Financial and we can quickly assess your personal situation and see if this would be right for you.
The other options listed here will all help you see out the current COVID-19 crisis and we have to remember that this is only a temporary situation. But is always a prudent plan to have enough spare cash put aside to ride out the storm.
Reducing your mortgage payments, which is often a households largest expense, is always a good idea – regardless of what is happening in the world at the moment.