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24 Tips to Owning Your Own Home Sooner
1. Avoid the honeymoon
Introductory or honeymoon rates have been an important marketing tool for lenders. You are initially offered a cheap rate on your loan to get you in the door but once the honeymoon period is over, the lender will switch you to a higher variable rate of interest. The higher rate is usually higher than some of the basic loans available. The honeymoon is just that and generally only lasts a year or two so, in the long run you could be paying more.
You should also look at the exit penalties on this type of loan.
2. Repay at a higher rate
Paying off you loan at 2 to 3% more means you won’t notice if rates go up but you will also pay off your loan faster, saving the all important dollar.
3. Pay it off as fast as possible
Pay your loan off as fast as you can. As an example if you take out a loan worth $100,000 at 7% for 30 years, the repayments will be about $666. This equates to a total repayment of $239,508 over the term of your loan. If you pay the loan out over 10 years rather than 30, your monthly payment will be $1161.08. But the total amount repayed over the term of the loan will be only $139,329 - saving you $100,179!
4. Make payments more often
One of the simplest ways to reduce the term and cost of your is to make your repayments fortnightly (or weekly) rather than monthly. You should split your monthly payment in two and pay every fortnight. You'll hardly feel the difference in terms of cash in your pocket, but it could make thousands of dollars and years difference over the term of your loan. Instead of paying 12 monthly payments you will make 26 fortnightly, making a big difference in time and dollars.
5. Put a dint in the principal early
The first couple of years on your loan you are probably only paying interest and the principal isn't being reduced. This is one of the effects of compound interest. So, you need to do everything you can to get some of the principal repaid early, you will notice the difference. Any extra repayment amount lowers the capital, which means you'll be paying interest on a smaller amount. Pay your loan 1 month in advance & watch the difference!
6. Look into a package loan
Ocean Blue consultants can talk to you about packages on offer with various lenders such as discounted home insurance, fee-free credit cards, a free consultation with a financial adviser or even a fee-free transaction account. These small things will all add up in the long run. "Professional" packages are also worth asking about but beware of annual fees.
7. Consolidate
Many lenders will allow you to consolidate (re-finance) all of your debt into your home loan. This means instead of paying up to 20% on your credit card or personal loan, you can transfer these debts to your home loan and pay it off at around 7%.
8. Splitting interest
Split or combination loans allow you to take part of your loan as fixed and part as variable. If interest rates rise you will have the security of knowing part of your loan is safely fixed and won't move. However, if interest rates don't go up then you can use the flexibility of the variable portion of your loan and pay that part off more quickly.
9. Make your mortgage your key financial product
Offset or all-in-one loans allow you to have one account where all income is paid into & all expenses come out. This can make a huge difference to the term of your loan by reducing the principal on which interest is charged. These loans work best when you make additional payments.
10. Use your equity
Equity is the difference between the current value of your property and the amount you owe the lender. The amount you have in equity can be re-borrowed without having to go through the approval process by accessing it through your existing loan. An equity loan could be used to buy more investments, renovate or improve the property ensuring the value of your home increases over time.
11. Switch to a lower rate
Switching out of your current loan and taking out a loan at a lower rate can mean the difference of years and thousands of dollars. You might find that you could get a no frills rate that is as much as a percentage point cheaper than your current loan. Make sure you check out what it will cost you to switch loans.
There may be exit fees payable on your current loan and establishment fees and stamp duty on your new loan.
12. Forgo minor luxuries
Cutting down a little on your expenses could help you save money which can become an extra payment, eventually saving you interest. Look at how much you are spending on cigarettes, morning tea, lunches and even alcohol.
13. Stay informed - don't forget about your mortgage
Keep yourself up to date with what's happening in the marketplace. Rates change, new products and changes in the market itself may allow you to seize an opportunity or negotiate a better deal.
14. Invest the rest
When inflation is low, generally at the same time interest rates are too, it could be a good time to pay the minimum amount off your loan. Put any extra cash into investing in something more profitable. You should always see a qualified financial adviser before making any investment decision.
15. Offset accounts
Any money you have in an offset account works to offset the interest you are paying on your home loan. For example you may have a mortgage of $100,000 at 7% and an offset account with $10,000 in it earning 3%. Good offset facilities have the same interest rate as your loan. This means that $90,000 of your loan is accruing interest at 7% but the rest is accruing interest at just over 4% (7% minus the 3% on the offset account).
16. Pay cash for any fees and charges
If you can come up with the cash for extra expenses you will be better off not adding the amount to your loan. Otherwise the extra $2000 or so will increase your total repayment amount.
17. Pay your first installment before it's due
The first installment may not become due for a month after settlement. If you can (and your lender will let you), pay the first installment on the settlement date. This means you will be one step ahead of the lender for the term of your loan.
18. Shop around
Ocean Blue Mortgage Consultants can do this for you and make it easy. This way you will get the best deal by being able to negotiate with the lenders.
19. Is your loan portable?
If there is any chance that you will move house during the course of your loan, check that your lender will allow you to transfer your loan to a new property and the conditions for transfer.
20. Avoid bridging finance
Unless you get your timing right you could find yourself with two home loans at the same time - with the bridging finance element costing you an extra couple of percent premium on the standard variable rate.
21. Choose the loan that suits your needs
Know what you want from your home loan when you speak to a Ocean Blue Mortgage Consultant and they will ensure you get the best loan for your needs.
22. Don't be afraid of smaller lenders with lower rates
"Non-traditional lenders" have forced interest rates down with low fees and many have done very well. Some borrowers worry about what might happen if their lender gets into financial trouble, just keep in mind that you've got their money!
23. Find out if your profession will get you a discount
Some lenders offer discounts to specific professional groups or members of professional organisations.
24. Consult a financial adviser or professional finance consultant
When choosing a home loan you should always consult a professional financial adviser or consultant who is understanding of your needs and will match a loan product to achieve your goals. These people will structure your finances to achieve lifestyle and home ownership faster.
Call your 360 Degree Wealth Consultant today!
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