How The Right Home Loan Structure Could Save You Thousands On Your Mortgage??
If you are one of the 50% of borrowers having to refix your home loan soon, you are probably dreading the thought of having to refix at a higher interest rate.
While there is nothing you can do about the interest rates as such, there is something you can do to save on your interest costs, and that all comes down to how you structure your mortgage.
The way you structure your mortgage can help you pay less interest overall and could take years off your home loan. A Mortgage Adviser can help you choose a loan structure to suit your financial situation, and check in with you to review it regularly as your circumstances change.?
Tailoring your mortgage to suit your own goals and preferences is something that is often overlooked.
It can be a bit of a mission to even get the home loan in the first place, so you tend to skip over the most important part, which is - how you’re going to pay it off as quickly as possible and reduce the amount of overall interest you pay along the way!
That's why working with a Mortgage Adviser is imperative in helping you achieve freedom from those mortgage payments as soon as possible. We will be able to suggest the best structure for you and align these with your goals, which will provide certainty and reassurance for you.
So what's the best way to structure your home loan??
There are various home loan structures and interest rates available, each with its own pros and cons.
Fixed-rate loans offer stability and predictability, while variable-rate loans can fluctuate with the market. Split loans provide a combination of both.
The first thing to consider when creating the best mortgage structure for you, is the age and stage of where you’re at. Are you planning a family in the coming years, and want to pay off as much as possible while earning two incomes? Do you want to start an investment property portfolio at some stage? Or are you nearing retirement and want to nail the mortgage before you stop working?
The second thing is to factor in your future plans.? Are you planning to make extra repayments, refinance, or sell the property in the near future? These factors can influence the suitability of different loan options. For example, if you plan to sell the property within a few years, then a fixed-rate loan with hefty break fees may not be the best choice.
Splitting Your Interest Rate Risk ??
Your attitude towards risk also plays a significant role in choosing the right home loan structure and interest rate.
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If you prefer stability and want to know exactly how much your repayments will be each month, a fixed-rate loan might be more suitable.
On the other hand, if you're comfortable with some level of uncertainty and potential interest rate fluctuations, a variable-rate loan could be a good fit.
It can be challenging to figure out which interest rate to go for. Rates have been on the rise lately and no one really knows when they are expected to come back down again, even the economists get it wrong sometimes!
So to safeguard and provide yourself with some certainty over the next while, you could look at splitting your home loan into smaller amounts and fixing them on different terms. This way you can benefit from having flexibility in case rates increase or decrease. If you have a big home loan it can also be helpful to split this up into smaller chunks (known as tranche’s in the banking world), so you can focus on paying down one chunk at a time.
Restructuring loans into smaller sizes can also be considered, which can be done during your fixed rate renewal or by breaking the loan and restructuring it onto a new term (break fees may apply so talk to your Mortgage Adviser first).?
Choosing the best home loan structure and interest rate requires careful consideration of your financial circumstances, goals and risk tolerance.
By understanding your options and thoroughly assessing loan features, you can make an informed decision that aligns with your needs & goals.
Remember, the right home loan structure can set you on the path to financial security by helping to reduce those interest costs, so take the time to explore your options with your Mortgage Adviser and reach out if you need a hand!
Raj?? 022 368 3240
The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Raj Mehta or KHL Finance shall not be liable or responsible for any information, omissions, or errors present. I recommend seeking professional legal and/or mortgage advice for your own personal situation. My Disclosure Statement is available here and on my website.