With interest rates at their highest levels in years, your mortgage is likely on your mind. So, how can you get on top of it this year? Here are some practical steps you can take, according to our SHARE advisers.
Reassess your repayment amount
As you know, mortgage repayments are made up of two parts: the principal part (what you borrowed from the lender) and the interest part. And any extra that you pay on top of the minimum required repayment amount goes to reduce the principal part, cutting time off your loan term and reducing the overall interest you’ll pay.
Now that mortgage interest rates are higher, paying extra on top of your increased payments might be challenging. But if you can afford to increase your repayments above the minimum required, or make extra lump-sum payments, you will still pay off your mortgage faster.
Remember: you can usually make unlimited extra payments if you have a floating rate, while if you are on a fixed-rate mortgage, you can usually only pay extra up to a certain amount without potentially incurring an early repayment fee.
Review your mortgage structure
Another way to stay on top of your mortgage is to ensure that the structure is still appropriate for your needs. For example, if you fixed your whole mortgage on one interest rate, you might consider splitting it into two or more portions, each with its own fixed-rate term..
Some people choose to split their mortgage into three parts, and fix one for a shorter period (e.g., one year), another one for longer (e.g., three years), and leave the last one on a floating rate. This strategy combines certainty of budgeting (with the fixed-term portion) and flexibility to make extra repayments (on the floating portion).
Ponder your interest rate options
If the fixed-rate term on your mortgage is due to expire soon, now is a good time to consider your next steps.
The right interest rate structures for you will depend on your circumstances: as we said, there could be value in splitting your mortgage into multiple fixed interest rate terms, working independently. If you’re thinking of fixing all or part of your mortgage, here are some key things to think about:
- What is the forecast for fixed-term interest rates? While no one knows for sure where mortgage rates might be headed next, forecasts can give you a rough idea to start with.
- What does your income look like over the period you’re looking at refixing? You may be up for an income increase or a bonus. Or you may be planning a family, which means that your available income might reduce for some time.
- Can you do a lump-sum payment before refixing? When your fixed-term interest rate expires, it automatically shifts to a floating rate, unless you have already agreed the next fixed-rate term with your lender. However, if you have a lump sum available in your savings, you may be able to make an extra repayment, before refixing again.
Book your mortgage review
With so many considerations, talking to a mortgage adviser like us can give you clarity and direction, and even help you realign when you get off course.
Whether your fixed-term rate is due to expire soon, or it’s been a while since you took a closer look at your home loan, make sure you schedule a mortgage review at your earliest convenience. Regular reviews can help you take control of your finances and find ways to make your money work for you.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.