"A home loan can be a focal point of stress for a lot of Australians. See what can be done to relieve some of that pressure." - Jack Smallwood, Finance Manager
With 12 rate rises under our belts (and counting), loan repayments have increased significantly, putting a strain on your budget. Whether you have one investment loan or multiple, it's essential to have a plan to reduce your loan repayments in this rising rate environment.
Making extra repayments on your loan can help you reduce your loan repayments in a rising-rate environment. By making extra repayments, you can reduce the amount of interest you pay over the life of the loan. You can make extra repayments by paying more than the minimum repayment each month or making lump-sum payments when you have additional funds available.
If you have multiple loans, you can consolidate them into one loan to reduce your loan repayments. Consolidation involves taking out a new loan to pay off your existing loans. This can simplify your finances and reduce your monthly repayments. However, you should be careful when consolidating your debts as it can increase the total interest you pay over the life of the loan.
If you're struggling to make your loan repayments, you can negotiate with your lender to reduce your repayments. Lenders may be willing to lower your interest rate, extend your loan term, or offer repayment assistance. However, you should be prepared to provide evidence of your financial situation and show that you're committed to repaying the loan.
Variable-rate loans are loans where the interest rate can change over time. If you have a fixed-rate loan, your repayments will remain unchanged for the fixed term, regardless of any interest rate changes. However, with a variable-rate loan, your repayments will increase or decrease if the interest rate changes. While this can make it difficult to budget, it can also provide you with flexibility and potentially lower repayments if interest rates decrease.
If you're struggling to make your loan repayments, you may need to reduce your expenses. Look for ways to cut back on your spending, such as lowering your entertainment budget, cooking at home instead of eating out, or using public transport instead of driving. Every dollar you save can go towards reducing your loan repayments.
Extending the loan term is one way to reduce your loan repayments. When you extend the loan term, you increase the number of years over which you repay the loan. This can lower your monthly repayments, but it will also increase the total interest you pay over the life of the loan. Therefore, it's essential to weigh up the pros and cons of extending your loan term. However, not all lenders (including loans.com.au) allow for an extension of the loan term. If this is something you’re set on, you may need to consider refinancing.
One of the best ways to reduce your loan repayments is to refinance your loan. Refinancing involves taking out a new loan to pay off your existing loan. The new loan usually has a lower interest rate than your current loan, which can significantly reduce your loan repayments. However, before you refinance your loan, you should consider the costs involved, such as application fees, valuation fees, and legal fees. You should also check the terms and conditions of the new loan to ensure that it suits your needs.
Source: Your Investment Property
Mortimer, M. (2023, June 19). How to reduce your loan repayments in a rising rate environment. Yourinvestmentpropertymag.com.au. https://www.yourinvestmentpropertymag.com.au/property-finance/how-to-reduce-your-loan-repayments-in-a-rising-rate-environment