Friday, September 28, 2012

24 Mortgage Tips and Tricks [1-12]

1. Skip the honeymoon
Beware of lenders bearing gifts. Introductory or honeymoon rates have long 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.

2. 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 rate you can and add 2 or 3 points to your
repayment amount. So if you have a loan at about 7 percent and pay it off at 10 percent,
you won’t even notice if rates go up. Best of all, you’ll be paying off your loan quicker and
saving yourself a packet.

3. 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 $300,000 at 7.07 percent for 25 years, your repayment will be about $2,134. This equates to a total repayment of $640,126 over the term of your loan.

4. Make more frequent payments
The simple 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 repayment on a fortnightly rather than monthly basis. How can this make a difference I hear you ask?

5. Hit the principal early
Over the first few years of your mortgage, it may seem that you are only paying interest and the principal isn’t reducing at all. Unfortunately, you’re probably right, as this is one of the unfortunate effects of compound interest. So you need to try everything you can to get some of the principal repaid early and you’ll notice the difference.

6. Get a package
Speak to your lender about the financial packages they have on offer. Common inclusions
are discounted home insurance, fee-free credit 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 little bit counts and so you can
use the little savings on other financial services to turn them into big savings on your home

7. Consolidate your debts
One of the best ways of ensuring you continue to pay off your loan quickly is to protect
yourself against interest rate rises. If your home loan rate starts to rise, you can be absolutely positive about one thing – your personal loan rate will rise and so will your credit card rate and any hire purchase rate you happen to have.

8. 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 combination 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.

9. Make your mortgage your key to financial product
Mortgage products known as all-in-one loans or 100 percent offset loans allow you to use
your mortgage as your key financial product. This means you have one account into which
you can pay all of your income and draw from your living expenses by using a credit card,
EFTPOS or a chequebook, as well as making your mortgage repayments.

10. Use your equity
If you have already paid off some of your home, you are said to have equity. Equity is the
difference between the current value of your property and the amount you owe the lender.
For example, if you have a property worth $500,000 on which you owe $150,000, you are said to have home equity of $350,000, which you can re-borrow without having to go through the approval process by accessing it through your existing loan.

11. Switch to a lender with a lower rate
It may sound like a simple idea but 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. If you have a loan that is tricked up with all the features, or even if you have a standard variable 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.

12. Forgo 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 it it). Think of all the weight you will lose by giving up your favorite 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.