Managing your mortgage is one of the most important steps towards achieving long-term financial success. A mortgage is likely one of the largest debts you’ll ever take on, and how you manage it can significantly impact your financial well-being and future goals.
By understanding simple strategies for managing your mortgage, you can save thousands of dollars over the life of your loan and reduce financial stress.
Whether you’re a first home buyer, property investor, or someone looking to refinance your home loan, these tips will help you stay on top of your mortgage.
Creating and sticking to a budget is the first step of successful mortgage management. Your budget should account for all your income and expenses, ensuring you can comfortably cover your home loan repayments each month or pay period without overextending yourself. Start by listing all your sources of income and then detail your monthly expenses, including your mortgage, utilities, groceries, insurance, and any other recurring costs.
Tip: Review your progress regularly and make adjustments as needed. What you don’t track, you can’t improve.
Helpful Resource: Budget Planner
Setting up automatic repayments ensures that your mortgage payments are always made on time, helping you avoid late fees and maintain a good credit rating. It also takes the hassle out of remembering payment dates.
Tip: Schedule your repayments to coincide with just after your payday to ensure funds are always available.
Making extra repayments on your mortgage can significantly reduce the total interest you pay over the life of the loan. Even small additional payments can make a big difference, especially if done consistently. For instance, if you receive a bonus at work or a tax refund, consider putting it towards your mortgage.
Tip: Check if your mortgage allows extra repayments without penalties. Fixed-rate loans may have restrictions, while variable-rate loans often offer more flexibility.
Helpful Resource: Extra Repayments Calculator
Paying your home loan weekly or fortnightly instead of monthly can have a significant impact on both your loan term and the total interest you pay, but the key savings come from the extra payments you make each year.
Here’s how it works: Imagine your monthly mortgage payment is $4,000. If you switch to weekly payments, you can divide that amount by four, resulting in a weekly payment of $1,000. Over the course of a year, instead of making 12 monthly payments (which totals $48,000), you’ll make 52 weekly payments (totaling $52,000). This means you’re effectively making an extra month’s worth of payments each year—$4,000 more than if you stuck to monthly payments.
This additional payment reduces your loan principal faster, which in turn decreases the interest you’re charged over the life of the loan. The result? You could shave years off your mortgage and save thousands of dollars in interest.
Helpful Resource: How Long to Pay Calculator
Setting up direct debit for recurring household bills ensures you never miss a payment, helping you maintain control over your finances. This automated process reduces the risk of late fees, stress and allows you to manage your cash flow more effectively.
Tip: Align direct debit payments with your income schedule to ensure funds are available when needed. Some banks can even predict your future bills based on recurring payments and help you budget for these in your online banking by giving you reminders.
Helpful Resource: Moneysmart – Direct Debits
Having a dedicated bank account for all household bills and related costs helps you manage your finances more effectively. With a separate account, at a glance you are able to see what funds you have available for your loan and bills and what you have for day to day spending. This separation ensures that your mortgage payments and household expenses are always covered, and avoids you accidentally spending your bills money making budgeting simpler.
Tip: Set up automatic transfers from your main account to this dedicated account after each payday or split your pay through your workplace so you have money going directly into the bills account.
An offset account is a transaction account linked to your mortgage. The balance in this account is offset against your loan principal, reducing the amount of interest you pay. For example, if you have a $500,000 mortgage and $20,000 in your offset account, you’ll only pay interest on $480,000.
Tip: Keep any savings or extra funds you have in your offset account as long as possible to maximise interest savings. Some lenders allow multiple offset accounts which can be handy if you use multiple accounts as all your money is helping you save interest everyday.
Helpful Resource: Home Loan Offset Calculator
If you have a redraw facility, resist the urge to dip into it frequently, as it can extend your loan term. Avoiding frequent use of your redraw facility is crucial for staying on track with your mortgage repayment goals. While a redraw facility offers flexibility by allowing you to access extra repayments you’ve made, dipping into these funds too often can significantly extend your loan term and increase the total interest you pay.
It’s tempting to use this money for short-term needs or wants, but doing so undermines the progress you’ve made in reducing your mortgage balance. Instead, it’s wiser to treat redraw funds as a financial safety net for true emergencies, ensuring that your extra payments continue to work in your favour by lowering your loan principal and saving you money over time.
Maintaining an emergency fund is an easy way to avoid financial stresses. Ideally, you should have enough savings to cover at least three months’ worth of living expenses, including your mortgage payments. This fund acts as a safety net in case of unexpected events like job loss, medical emergencies, or major repairs, ensuring you can continue making mortgage payments without financial strain.
Tip: Keep your emergency fund in a home loan offset account to lower your home loan interest payments or as redraw on your home loan if possible. Ensure that it’s easily accessible but separate from your daily spending.
Helpful Resource: Moneysmart Emergency Funds Guide
Your mortgage broker is a valuable resource in managing your loan effectively. A great broker will check-in with you every six months to twelve months to review your mortgage and discuss any potential savings or adjustments. They can provide insights into current market conditions and suggest refinements to your mortgage strategy.
Tip: Don’t hesitate to reach out to your broker with any questions or concerns; they are there to help you succeed.
Helpful Resource: Book a meeting with a Mortgage Broker at In Financial Services
Staying proactive in managing your mortgage can lead to substantial savings and financial peace of mind. Regularly reviewing your loan, making extra repayments, and utilising features like offset accounts can all contribute to paying off your mortgage faster and with less stress.
Remember, small changes can lead to significant long-term benefits and if you have any questions or concerns, reach out to your mortgage broker team at In Financial Services.
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