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If you're looking for some financial relief from your regular mortgage repayments, there are ways to do this without refinancing your home loan.
Some of them may be quite easily achieved but before you act, it's important you are across the implications of lower repayments and the long-term effect it can have on your home loan.
Should you lower your home loan repayments?
Before we get to the options to lower your home loan repayments, let's consider the consequences of doing so.
Lower repayments essentially mean you are paying off your loan at a slower pace. Not only can this add to your loan term, but it will also see you pay more in interest over the life of your loan.
Before you leap, it's wise to run the adjusted figures through a Mortgage Repayment Calculator to understand in dollar terms how much it could cost you in the long run.
Savings.com.au's How long to pay off your mortgage? calculator will also give you an idea of how much extra time it could add to your loan term.
Lowering your mortgage repayments can certainly help you through a financial tight spot but ask yourself why you're wanting to reduce your home loan payments. If it's to free up more funds as disposable income or for lifestyle purposes, consider whether this is worth the thousands of dollars in extra interest this will potentially cost you.
How to lower your mortgage repayments
There are a number of ways you can effectively reduce your regular mortgage repayments. Some may suit your circumstances better than others so make sure you consider your alternatives.
Lower your repayments as interest rates drop
This is arguably the easiest way to reduce your mortgage repayments - in line with market movements in interest rates. If your variable interest rate drops following a change in the official cash rate or for other market reasons, you may choose to drop your regular repayments accordingly.
For some lenders, this will happen automatically when their interest rate cuts take effect. But other lenders will continue to take the higher repayment amount until you opt in to take a repayment cut.
See also: Which banks and lenders automatically lower repayments after a rate cut?
Be sure to understand how your lender handles interest rate falls so you can take up the option that best suits your circumstances.
Negotiate a lower rate with your lender
Another effective way of lowering your repayments is asking your lender for a better interest rate. This strategy tends to work best if you have proven yourself to be a good customer, always making your repayments on time and in full.
There is definitely no harm in asking and it won't affect your credit score.
Make interest-only repayments
This can be an option if you're facing a short-term financial squeeze but is generally not a good strategy for owner-occupier home loans over the long term.
See: Interest-only vs Principal and Interest for Home Loans
Paying interest only can be effective for investment home loans where property owners can claim tax benefits for the payment of interest but not on the principal amount.
You will need to speak to your lender before you make the call to switch to interest-only repayments. It's also wise to seek some independent financial advice so you have a good understanding of the long-term implications including increased interest costs and an extended loan term.
Change to a fixed interest rate
Fixed rates are often lower than variable rates on many home loans. It's worth checking your lender's fixed rates if you're looking to reduce your regular loan repayments.
You may decide to fix all or part of your home loan - called a split loan - to reduce your regular repayments for a set period. Bear in mind, this may come with some switching or refinancing costs so make sure you do the calculations to see whether the expense will be worth it.
See also: How to choose between a fixed-rate or variable-rate home loan?
Fixed rate home loans lock you into a rate for a given time period so while your repayments might initially be lower than the variable rate you were paying, there is nothing to say that will be the case for the entire fixed-rate period.
Make sure you understand the implications to fixing your home loan rate. It can be expensive to break your fixed-rate contract should you wish to switch back to a variable rate before the period has expired.
See also: What are break fees on a fixed rate home loans?
Refinance your home loan
You should only take this step if you've considered all options with your current lender first.
See also: 11 things to consider before refinancing your mortgage
If you're wanting a new home loan to access equity or achieve a lower interest rate, you may be able to negotiate a good refinancing deal with your existing lender.
Even if you've found a better deal on the market, it's still worth asking if your lender will match or beat it. Again, your lender will be more willing to keep you on its lending book if you've been a good borrower, always making your home loan repayments on time.
Be sure to investigate what deals are available on the market before you leap and ensure the home loan you opt for is going to be the best one for you, not just a short-term solution to cash flow issues or a financial tight spot.
Refinancing a home loan will come with some costs. Do your research to see if switching loans - or switching lenders - is going to be economical for you over the longer term.
See also: How much does it cost to refinance your home loan?
If you decide to go ahead with refinancing, make sure you shop around. The table below features some of the lowest interest rates currently available on the market.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
Lowering your repayments: the case for
The best reason to want to lower your home loan repayments is because you're struggling to pay them.
Be proactive in taking steps to reduce your other expenses and/or increase your income, in tandem with considering ways to lower your home loan repayments, particularly if it's a short-term financial issue such as an unexpected expense that has dented your funds or you're between jobs.
However, if you're experiencing mortgage stress or can foresee the day when you may not be able to make a home loan repayment, get in touch with your lender's hardship team sooner rather than later. These teams are obliged to help you get through a difficult period.
It's best if you've tried other options yourself first as accessing financial hardship assistance will be noted on your credit report and may affect your future borrowing power.
Lowering your repayments: the case against
Unless you're struggling to meet your regular repayments, it can be highly beneficial to keep your repayments the same - even as interest rates drop. Simply put, if you don't need to lower your home loan repayments, then perhaps you shouldn't.
Pushing on with your home loan repayments at their current level - or contributing extra - can literally save you tens of thousands of dollars over the course of your loan. It definitely is a case of short-term pain for long-term gain.
See also: Extra and Lump Sum Payment Calculator
Yes, it may be nice to have extra money in your pocket but if it's not going to be put towards any particular financial goal, it may be put to best use paying off your home loan as quickly as possible.
How else can you save on your home loan?
There are a couple of other ways you can save money over the course of your home loan although they will not lower your regular repayments.
Make best use of an offset account
An offset account is an account linked to your home loan with the money in the account 'offset' against the balance of your loan, meaning you only pay interest on the difference.
With a 100% offset account, if you have a loan of $600,000 and had $50,000 in an offset account, then you would only have to pay interest on $550,000.
The more you have in an offset account, the more you can save in interest which, in turn, can shorten the term of your loan.
Bear in mind that home loans with offset accounts tend to have slightly higher interest rates and having money in an offset will not actually lower your repayments, just see you pay off your loan faster.
Pay more regularly
Making more frequent loan repayments, such as paying fortnightly or weekly instead of monthly, can see you making an extra month's worth of repayments each year - possibly without you even noticing it. Doing this can save you a tidy sum in interest on your home loan as well as see you pay it off much sooner.
You can contact your lender to put this in place, but make sure your fortnightly repayment is exactly half the monthly repayment (or a quarter if repaying weekly).
Some lenders may try to calculate the fortnightly or weekly repayments to keep the aggregate annual repayments the same. This is because they know what a great money-saver it is.
What else you can do if you're struggling to meet your repayments
Ask your lender for a repayment freeze: Contacting your lender should always be your first port of call. They will consider what solution may be best for your circumstances including a freeze to your repayments (also known as a repayment holiday) until you get back on track.
Consider accessing your super: In extremely limited circumstances, you might be allowed to access your superannuation to save you from losing your home, but this should only be done as a last resort and there are conditions that apply.
Seek financial counselling: There is free help out there if you're struggling with your loan and other debt commitments. A good place to start is the National Debt Helpline on 1800 007 007. Its counsellors may be able to assist you in understanding all your options and coming up with a plan for the best way forward.
Savings.com.au's two cents
The bottom line is you generally shouldn't adjust your home loan repayments unless you absolutely have to. The best reason to lower your repayments is because it can help you avoid financial difficulty, rather than boost your disposable income.
If you're struggling to meet your mortgage commitments, consider the easier options first. There are many measures that you may be able to take yourself to get through a short-term financial squeeze.
If you foresee a longer-term problem, get in touch with your lender as soon as possible and see what options it can offer you.
Remember, any lowering of your home loan repayments now will mean you will pay more in interest and face a longer loan term as a result.
If you do lower your home loan repayments in the short term, make a concerted effort to pay more when you're in a better financial position later on. This can make up for any ground you may have lost and makes good financial sense overall.