1. Skip the introductory rate (Honeymoon)
Beware of lenders bearing gifts! introductory or honeymoon rates have long been an prominent 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 changeable rate of interest. An example of this is an Adjustable Rate Mortgage (Arm).
There are two problems with this scenario. First, the changeable rate is often higher than some of the lower basic loans ready so you could end up paying more. Second, you need to clearly understand that a honeymoon rate applies only for the first year or two of the loan and is a minor consideration compared to the actual changeable rate that will rule your repayments over the next 20 or so years.
You may also be hit with fairly steep exit penalties if you want to refinance in the first two or three years to a cheaper loan. So make sure you fully understand what you are letting yourself in before setting off on a "honeymoon" with your lender.
2. Pay it off quickly
Time is money. There are all sorts of strategies for paying less interest on your loan, but most of them boil down to one thing: Pay your loan off as fast as you can. For example, if take out a loan of 0,000 at 6.5 per cent for 30 years, your reimbursement will be about be about ,896. This equates to a total reimbursement of 2,632 over the term of your loan.
If you pay the loan out over 15 years rather than 30, your monthly cost will be ,613 a month (ouch!). But the total estimate you will repay over the term of the loan will be only 0,397 - rescue you a whopping 2,235
· Make repayments at a higher rate
A good way to get ahead of your mortgage commitments is to pay it off as if you have a higher rate of interest. Get a loan at the lowest interest rate you can and add 2 or 3 points to your reimbursement amount. So if you have a loan at about 6.5 percent and pay it off at 10 per cent, you won't even consideration if rates go up. Best of all, you'll be paying off your loan quicker and rescue yourself a packet.
· Make more frequent payments
The easy things in life are often the best. One of the simplest and best strategies for reducing the term and cost of your loan (and thus your exposure should interest rates rise) is to make your reimbursement on a fortnightly (bi-weekly) rather than monthly basis. How can this make a contrast I hear you ask? It works like this:
Split your monthly cost in two and pay every fortnight. You'll hardly feel the contrast in terms of your disposable income, but it could make thousands of dollars and years contrast over the term of your loan. The hypothesize for this is that there are 26 fortnights in a year, but only 12 months. Paying fortnightly (bi-weekly) means that you will be effectively manufacture 13 monthly payments every year. And this can make a big difference.
Using our example from above, by paying monthly, you will end uprepaying 2,632 over the term of your loan. But, by paying fortnightly (bi-weekly), you will save ,254 in interest and 5.8 years off the loan. Zero pain to you, major benefit to your pocket.
· Hit the significant early
Over the first few years of your mortgage, it may seem that you are only paying interest and the significant isn't reducing at all. Unfortunately, you're probably right, as this is one of the unfortunate effects of blend interest. So you need to try all things you can to get some of the significant repaid early and you'll consideration the difference.
Every dollar you put into your mortgage above your reimbursement estimate attacks the capital, which means down the track you'll be paying interest on a smaller amount. Extra lump sums or regular supplementary repayments will help you cut many years off the term of your loan.
· Forego those minor luxuries
This is the bit you don't want to read. Once you have a mortgage, your life is likely to be luxury-free (or at least pretty close to it). Think of all the weight you will lose by giving up your favourite indulgent snack. For the sake of your health you should quit smoking and drink less anyway. Take your lunch from home and save on bad fast food. Trust me, your body will thank you for it.
If you're still not convinced consider the following example. A typical day may comprise a pack of cigarettes (), a coffee and donut (), lunch () and a concentrate of beers after work (). That's a day or 5 a week or 0 a month or ,100 a year.
Assuming a mortgage of 0,000 at 6.5 per cent over 30 years, by manufacture 0 in extra repayments each month, you'd save more than 6,000 in interest and be mortgage free in just over 14.5 years.
No one is saying you should live a convict existence but just cutting down a exiguous on your expenses will see you reap huge financial benefits.
3. Get a package
Speak to your lender about the financial packages they have on offer. Tasteless inclusions are discounted home insurance, fee-free prestige cards, a free consultation with a financial adviser or even a fee-free transaction account. While these things may seem small beer compared to what you are paying on your home loan, every exiguous bit counts and so you can use the exiguous savings on other financial services to turn them into big savings on your home loan.
There are also "professional" packages on offer for amounts over a sure limit, which can be as exiguous as 0,000. Some lenders offer discounts to specific pro groups or members of pro organizations. Ask your lender if your career qualifies you for any discount. You might be pleasantly surprised. There are all sorts of discounts and reductions attached to these packages so make sure you ask your lender about them.
4. concentrate your debts
One of the best ways of ensuring you continue to pay off your loan quickly is to safe yourself against interest rate rises. If your home loan rate starts to rise, you can be legitimately sure about one thing - your personal loan rate will rise and so will your prestige card rate and any hire purchase rate you may happen to have.
This is not a good thing as the interest rates on your prestige cards and personal loans are much higher than the interest rate on your home loan. Many lenders will allow you to concentrate - re-finance - all of your debt under the umbrella of your home loan. This means that instead of paying 15 to 20 per cent on your prestige card or personal loan, you can replacement these debts to your home loan and pay it off at 7.32 per cent.
As always, any extra repayments or lump sums will benefit you in the long run.
5. Split your loan
Many borrowers worry about interest rates and whether they will go up but don't want to be tied down by a fixed loan. A good compromise is a split loan, or blend loan as they are often known, which allows you to take part of your loan as fixed and part as variable. Essentially this allows you to hedge your bets as to whether interest rates are going to rise and by how much.
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 (or if they rise only slightly or slowly) then you can use the flexibility of the changeable measure of your loan and pay that part off more quickly.
6. Make your mortgage your key financial product
Mortgage products known as all-in-one loans, revolving line-of-credit or 100 percent offset loans allow you to use your mortgage as your key financial product. This means you have one list into which you can pay all of your wage and draw from for your living expenses by using a prestige card, Eftpos or a checkbook, as well as manufacture your mortgage repayments..
These types of accounts can make a huge contrast to the speed at which you pay off your loan. Because your whole pay goes into your mortgage list you are reducing the significant on which interest is charged. Sure, you might take a concentrate of steps back as you withdraw living expenses but right use of this sort of goods can get you thousands of dollars ahead of where you'd be with a "plain vanilla, pay once a month" home loan.
These loans work well when you are able to make supplementary payments towards the loan. If you are only able to make the equivalent of the minimum reimbursement on your loan (and not put in any extra) you may be best off with a cheaper suitable changeable or basic changeable loan. However, it's not unusual for dedicated borrowers using these types of loans to cut the term of a 30 year-old loan to less than ten.
7. Use your equity
If you have already paid off some of your home, you are said to have equity. Equity is the contrast in the middle of the current value of your asset and the estimate you owe the lender. For example, if you have a asset worth 0,000 on which you owe 0,000, you are said to have home equity of 0,000, which you can re-borrow without having to go through the approval process by accessing it through your existing loan.
Many lenders will allow you to borrow using your equity as collateral. Most lenders will allow you to borrow up to about 80 per cent of the loan-to-value ratio (Lvr) of your ready equity. If you are careful, you can use this equity to your benefit and help to pay off your home loan sooner.
Using an equity loan to enhance your asset could be a good way to ensure that your home increases in value over time. But larger expenses such as cars and holidays that would have been paid by prestige card are more affordable on the lower rate of your home loan.
8. Switch to a lender with a lower rate (But do your sums)
It may sound like a easy idea but switching out of your current loan and taking out a loan at a lower rate can mean the contrast of years and thousands of dollars. If you have a loan that is tricked up with all the features, or even if you have a suitable changeable loan, you might find that you could get a no frills rate that is as much as a percentage point cheaper than your current loan.
However, before you jump the gun, check out what it will cost you to switch loans. For example, there may be exit fees payable on your old loan and preparation fees and stamp duty on your new loan. Work it all out and if it makes sense, go for it.
9. Stay informed - don't forget about your mortgage
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With any long-term commitment, there is always the temptation to let your mortgage roll along, make your repayments as they fall due and think as exiguous about it as possible. As long as you keep up the repayments, there's not much else you need to do, right?
This attitude can be a big mistake. Keep yourself up to date with what's happening in the marketplace. You might find that there's an chance to put yourself well ahead of the game. Rates change, new products and changes in the market itself may allow you to seize an chance or negotiate a best deal.
Stay informed and stay ahead of the game.
10. Get a cheap rate and spend the difference
When interest rates are low, like now, it is normally safe to say that inflation is also low. Thus, bricks and mortar may not be the best place to invest. Try getting the cheapest home loan you can find and make the minimum repayment. This allows you to use the extra cash to spend in other, more profitable areas.
You may find that the return you get on shares or some other type of speculation means that you have created a nice exiguous nest egg which you can use to pay off a bigger chunk of your home loan than you might otherwise have been able to do.
But beware - high returns often mean high risks. Before undertaking any investment, spend in a consultation with a excellent financial adviser.
11. Run an offset account
Instead of earning interest, any money you have in your offset list works to offset the interest you are paying on your home loan. For example you may have a mortgage of 0,000 at 6.5 percent and an offset list with ,000 in it earning 3 percent.
This means that 0,000 of your loan is accruing interest at 6.5 percent but the rest is accruing interest at just over 3.5 percent (6.5 percent on your loan less the 3 percent the ,000 in your offset list is earning). Fantasize how much you can save!
Of course, the best sort of offset list pays the same rate as your loan (100 per cent offset).
12. Pay all your mortgage fees and charges up front
Some lenders allow you to add to the estimate you borrow instead of advent up with cash for your upfront costs. While this can seem a blessing try to avoid doing this. consider the following example:
Borrower A borrows 0,000 over 30 years at 6.5 percent. Her upfront costs are ,000 but she has adequate cash to make sure she can cover these. Her total reimbursement over 30 years will be 2,632
Borrower B takes out the same loan but doesn't have adequate cash to cover the upfront costs. So he borrows 1,000, at the same rate. Her total reimbursement over 30 years will be 4,907.
Two thousand odd-dollars might not sound like a huge estimate but what could you buy with it if it stayed in your pocket?
13. Pay your first instalment before it's due
With most new loans, the first instalment may not come to be due for a month after settlement. If you can carry on it (and your lender will let you), pay the first instalment on the settlement date. If you do this, you will be one step ahead of the lender for the term of your loan. Every exiguous bit counts.
14. Shop colse to and make sure your lender knows it
One of the most excellent tools you can have in the quest for the best home loan is information. Make sure you have rung half a dozen lenders and brokers (as well done some internet research) before you start talking to your beloved lender about getting a new loan or refinancing your existing loan.
Make sure you know what rates and features are offered by each of your lender's competitors on comparable products. Be ready to tell the lender what you are finding for and don't be afraid to ask for extras. If they want your business, and know you know what you are talking about, they may be ready to work that exiguous bit harder to get your business.
Don't be afraid to walk out if you aren't getting the best possible deal you can.
15. Make sure your loan is portable
If there is any chance that you will move house during the policy of your loan (and let's face it, there is a strong chance), make sure that your lender will allow you to replacement your loan to a new asset and that it won't charge you the earth for the privilege.
Be careful. If you sell up and buy a new house, you could find yourself down thousands in dismissal costs on your old loan and preparation fees on your new one.
16. Avoid bridging finance
Someone once said bridging finance is so called because it allows you to "pylon" the debt. The joke's appalling, but so is 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 concentrate of percent excellent on the suitable changeable rate.
Consider using a deposit bond or selling before you buy, as it will be much more cost productive for you than an additional one loan.
17. Select the loan that suits your needs
Choosing a loan is about knowing what you want. Draw up a table of possible home loans and rank them. Make a list of all the features that are prominent to you and rank them according to importance. Give each feature a score out of 5 - one for unimportant right through to 5 for indispensable.
Use this technique for ranking the loans on offer and pretty soon you'll see the one that's right for you. Remember, different loans have different purposes so you need to match a loan to your need. Taking out an interest only loan suitable for investors if you are planning to live in the house is just foolish.
Ditching the features you don't need can save you up to 1 per cent on the interest rate of your loan. Over 30 years that's a whole lot of money you've just saved yourself.
18. Don't be afraid of smaller lenders with cheap rates
Since the advent of the mortgage managers over the past five or six years there's been a lot of talk about smaller and "non-traditional lenders" and how they have forced interest rates down. With the asset boom, plentifulness of opportunities sprang up for smart lenders with low fees willing to take on primary lenders and many have done very well indeed.
Some borrowers worry about what might happen if their lender gets into financial trouble. Keep in mind that you've got their money - so don't worry too much. There are some smaller lenders whose names might not be readily customary but whose rates might be adequate hypothesize to get in touch.
Be wary, however. Some of these smaller lenders can have huge hidden fees and charges. It is true that the interest rate might be much lower, but in many cases, they exit (or penalty) fees can be very high if you refinance or pay off your mortgage in the first concentrate of years. Of course, if you're planning on staying with that lender for some time, then these fees will not impact your pocket at all.