in your best interests
a mortgage can be the biggest expense you will ever incur. use these tips to slash years off and save yourself thousands
Focus on Big Wins
There will be people who tell you to cut back on coffees, don’t have that after work beer, no chocolate at lunchtime etc etc. All great advice – but no one is ever going to maintain these ideas as it involves will power (which is a very scarce commodity!). Rather than beating yourself up by failing at these why not spend 1hr per year and focus on some big wins. Find out how to save hundreds of dollars with just a couple of phone calls here.
Make Extra Loan Payments
Making regular or periodic extra repayments such as tax refunds, work bonuses etc help reduce the principal on your mortgage that bit quicker. The earlier you begin making these additional payments, the greater the benefit you will see, as you will both shorten the loan term and pay less interest.
Make extra repayments right from the start
Regular additional repayments made right from the beginning of your loan term will have a much greater effect on the overall time and cost of your loan than starting five or ten years into the loan. Even if you are already more than five years into your loan term, you can still make a considerable saving by starting to make additional repayments now.
A Great Rate with Flexibility
The simplest way to repay your loan faster is to secure a lower rate than the one you are currently on, but maintain (or even increase) the repayment amount. Keep an eye out for a loan with a low rate that offers the flexibility to make extra payments. There are a number of lenders whose rates differ significantly from the major banks’ rates that still offer flexibility, but if you are going to refinance, make sure the costs incurred don’t outweigh the benefits you may receive.
Make settlement date your first repayment date
Rather than waiting a month to make your first repayment (as is the norm) try making your first repayment on your settlement date. This reduces the principal before the first lot of interest accrues.
Pay Any Set Up Fees Up Front
If you can avoid capitalising any upfront costs (such as legal costs, Low Equity Fess etc) this could potentially save your thousands of dollars in interest over the lifetime of the loan.
By cutting expenditure on the non-essentials each month and redirecting the money saved into your home loan you can knock years of the loan term. Smoking, an after-work beer, morning coffee and that afternoon chocolate fix all add up over time. Add to that buying at least one lunch, breakfast or dinner less a week and you could be putting more than $50 extra a week into your mortgage. This is only for people who possess will power!...
Look Beyond the Big banks
The big banks aren’t always the best places to borrow money. Many smaller banks and specialist lenders offer very competitive loans. Just because you haven’t heard of a lender doesn’t mean they aren’t reputable – we can let you know which lenders are credible and appropriate for your needs.
Increase Your Repayment Frequency
If your loan repayment is calculated on a monthly basis, you can make great savings by cutting your monthly repayments in half and paying fortnightly instead. This will result in you paying an extra month’s repayment on your mortgage over the year, helping reduce the principal that bit quicker. You can use this loan repayment calculator to find out the difference in loan repayment amounts.
Check the fine print in your loan documents to ensure your lender has not calculated your fortnightly repayments to equal half what the monthly repayment would have been, as this will not save you in time or money. Use the extra repayments calculator to get an idea of how much you could save with different payment amounts.
Offset and Revolving Credit Facilities
Loans with offset facilities allow you to have your salary paid directly into the offset account which reduces the interest you pay on your home loan. The balance of the account is ‘offset’ against the balance of the loan for interest calculations and because you pay interest daily, this can save you a lot of money over the long term.
Keep Repayments The Same When Interest Rates Fall
When interest rates are falling, it is tempting to pay less and spend the difference. However, if you keep your repayments at the old level you will cut a significant portion of principle off your loan.
Combine for more saving power
Try at least two of the above tips in conjunction to really ramp up your savings.
Brian MacLean looks into tips, ideas and strategies you can use to get ahead financially..