While refinancing is a popular tactic to lower your interest rates and repayments, it might not be viable for all homeowners.
There could be many reasons why refinancing would not be a good option for you right now:
- You don’t think you can meet the stricter lending criteria
- You already have an acceptable interest rate
- You plan to move in the near future
- You recently bought your home and might not have enough equity
- It would take a few years to break even with the costs of refinancing.
That should not stop you from getting a better interest rate or lowering your mortgage repayments. You can still lower your mortgage repayments without refinancing. Here are five ways you can do it.
How To Lower Your Mortgage Repayment Without Refinancing
1. Negotiate A Lower Rate With Your Current Lender
Sometimes, lowering your repayments can be as simple as asking your lender to lower your interest rate. Even if the lender says no, there is no harm to your credit score. They won’t cancel your home loan for asking.
If negotiating a lower interest rate is not possible, you can extend your loan term to get lower repayments, but you pay more interest over the life of the loan that way.
2. Switch To Minimum Repayments
You can call your lender or mortgage broker to switch to making minimum repayments. This is feasible in a situation where rates have fallen, and you were making higher repayments than when you first got the loan.
Be careful when reducing your repayments, as paying off your home loan could take longer and cost more in interest over the life of the loan.
3. Switch to interest-only repayments
This is generally not a good idea unless the loan is for investment purposes or you are financially strained, as it increases the cost of your loan, both with the interest rate and because you take longer to pay it off.
It’s important that a broker or lender assesses your situation to make sure interest-only repayments are suitable for you. People sometimes use them when they have a baby or face short-term unemployment.
4. Use An Offset Account
An offset account is linked to your home loan. The balance you have in your offset reduces the principal owing when the bank calculates your interest payments.
You can use our offset calculator to find out how much you could save.
5. Change To A Fixed Rate
Since your repayments fluctuate with a variable interest rate, it might be time to fix it. If your financial situation has changed and you need the assurance of a fixed repayment amount for a few years, you can fix the interest rate on your home loan for up to five years.
Be careful when you fix your interest rate, as a fixed home loan has many limitations.
Lower Repayments Due To Financial Hardship
If you are having trouble keeping up with repayments or anticipate a situation where this might happen, do not hesitate to reach out to a mortgage broker or your lender to discuss your options. Lenders have financial hardship relief to help you during a tough time.
This is the last resort if you’re not able to pay, as using financial hardship benefits might affect your credit score and ability to borrow.
Tips To Help You Negotiate With Your Lender
You can use these tips to prove to the lender that you are not a risky borrower:
- Show that your credit score has improved
- Show you’ve been diligent and consistent with your repayments
- Pay off your other debts
- Decrease your credit-card limits
- If your income has increased, prove it
If you want to negotiate a lower repayment with your current lender and do not want to refinance, we can help you through the process. Sometimes, your lender might refuse to reach an agreement. In that case, we can explore viable refinancing options. Call us on 1300 889 743 or enquire online today.
