People can feel pretty trapped by their mortgage, but there are a few ways that you can really take action to reduce home loans, particularly by avoiding or offsetting fees. Here are some tips on how to reduce mortgage debt.
Types of Fees
Application Costs
This is the basic initial cost of setting up a home loan, and it can range from a couple of hundred dollars to up to one thousand. You can sometimes avoid these fees, though, if banks are trying hard to attract new customers. If you’re worried about repaying start-up fees when refinancing, try asking a lender if they would be willing to waive the fee. Greater Bank’s Ultimate and Investment Ultimate Home Loans don’t have any establishment fees.
Valuation Fee
You need a third-party valuation of your property. This is a factor in determining how much the bank will lend you. If you are refinancing, then getting your home in order (maybe a fresh paint job) may increase the value of the property.
Lenders Mortgage Insurance
This fee is payable if you borrow more than 80% of the property’s value - it goes towards paying for the lender’s own insurance policy on a defaulted loan. You can obviously avoid this by borrowing an amount underneath the threshold.
Annual Fees
These are just annual administrative fees - make sure you shop around to find the lenders with the lowest fees. Greater Bank’s Great Rate Home Loan has no annual fees.
Monthly Service Fees
Some lenders might charge a monthly administrative fee to service your loan - particularly if your loan comes with greater benefits. Make sure the benefits offset the monthly fee and, again, shop around first. Greater Bank’s Great Rate Home Loan has no monthly fees.
Repayment Fees
Often banks will charge you for paying your loan back faster than the terms of the loan agreement. This is to balance out the lost interest they will make on your reduced loan. Work out the balance between the fee and the money saved on interest to work out how much extra you can pay off.
Redraw Fees
Your loan might allow you to redraw on extra repayments you’ve already made and it might incur a fee. If your lender charges redraw fees, make sure you don’t repay all your available cash if you think you will need to redraw it back at some point. Greater Bank’s Great Rate Variable Home Loan has no redraw fees via online banking or any other ongoing fees.
Greater Bank
Late Payment Fees
Fees for not making your repayments on time - avoid these at all costs because they will really hamper your ability to get on top of your home loan.
Refinance Costs
There are costs you may have to cover if you decide to refinance. You should assess your financial position annually and try to find a lower mortgage interest rate. If you find one, take these fees into account to work out whether you’re better off, but don’t be afraid of them.
Top Tips to Reduce Mortgage:
- Create a budget and stick to it
- Make larger repayments
- Research interest rates and shop around
- Refinance home loan
- Balance fees with lower interest / more benefits
This article is intended to provide general information of an educational nature only. This information has been prepared without taking into account your objectives, financial situation or needs. Therefore, before acting on this information, you should consider its appropriateness having regard to these matters and the product terms and conditions. Terms, conditions, fees, charges and credit criteria apply. Information in this article is current as at the date of publication.
