While a home loan is a hefty expense, there are plenty of tactics buyers can use to significantly reduce fees, interest rates, duration and overall costs. Taking advantage of these strategies will not only save money, but will alleviate some of the stress that comes with navigating large mortgage repayments.
1. Make a large down payment
One of the most straightforward ways of reducing your loan amount is to pay a larger deposit upfront. Making a down payment of more than 20% can:
- Reduce initial fees
- Lower monthly payments
- Prevent you from paying more interest than necessary
2. Get an interest-only mortgage
Getting an interest-only mortgage may be an option if you wish to keep your monthly payments low or have stumbled upon financial hardship.
Usually, an interest-only mortgage is divided into two phases. In the first stage of an interest-only mortgage, you only make payments towards repaying the interest of the loan, while in the second phase you make repayments to both the principal loan and the interest.
While this will reduce your initial cost of your home loan, it is important to acknowledge that with an interest-only mortgage you will end up paying more in the long run, and during the second phase you will be paying more than a typical mortgage repayment. This type of loan would be beneficial for those who anticipate an increase in finances midway through the loan period but are unable to afford the full amount at first.
3. Extend your loan term
Opting for a longer loan term will reduce the amount of money you repay each month. However, it will end up costing you more over the course of the repayment, as the longer you take to repay, the more interest you will accumulate.
Alternatively, opting for a shorter loan term will reduce the amount of interest you pay, meaning that you will end up paying less overall, even if your monthly repayments are higher.
4. Refinance your loan
Refinancing your loan involves taking out a new loan to pay off an existing one. This is often done if an individual’s financial circumstances have changed, or if they encounter a better deal, either with the same or a different lender. Usually, refinancing is a relatively straightforward process, with lenders handling most of the process once your loan has been approved.
5. Defer your home loan
When you defer your home loan, you won’t have to make repayments for a predetermined period of time. You are still charged interest, however, which could mean you end up paying more money in the long term.
In the wake of COVID-19, many banks offered additional initiatives, such as a 6-month loan deferral to customers who have lost their jobs or encountered financial hardship during the pandemic.
If you’re looking to reduce your home loan expenses but are unsure where to start, we can guide you through the process and determine what strategies suit your financial needs.