12 Mortgage Finance Tips for Cutting Costs
No. 1: Do Your Research and Find the Cheapest Interest Rate
Your first step in reducing your mortgage is to find the lowest interest rate. Do your own research and check out current interest rates for the major banks and other lenders like Building Societies and Credit Unions.
However, you must be cautious. Your nice cheap interest rate could well be nullified if you’re stuck with an inflexible product and high fees. So, when you’re doing your research, look for the cheapest interest rate, lower fees, and a combination of features that you require from your home loan. If you need assistance, consult your Mortgage Broker.
No. 2: Ensure your Home Loan has a Flexible Payment Structure
You may want to make additional repayments on your home loan, so ensure that the mortgage you sign up for allows you to make your regular payment, in addition to one-off payments, without any penalties. These features may cost extra, so choose them carefully.
No. 3: Make Additional Payments As Soon as Possible
Were you aware that when you make payments at the beginning of your home loan they go towards paying off the interest component of your loan – they don’t reduce the principal? Therefore, if you can, make your additional repayments in the early stages of your loan, because these will go towards reducing the principal, thus reducing both the total interest payments and the pay-back period.
No. 4: Make Settlement Day your ‘First Mortgage Payment’ Day
This is a perfect example of how early repayments can reduce future interest repayments and the principal on your mortgage.
No. 5: Make Frequent Repayments
If interest is calculated on a daily basis, then making more frequent, either weekly or fortnightly, payments will cut the interest payable on your mortgage. The reason? You’ll be making the equivalent of thirteen monthly payments every year, thus reducing the term of your loan and the principal.
No. 6: Have Your Salary Paid Directly Into Your Home Loan
Again, because interest is calculated on a daily basis, when you have your salary paid directly into your home loan account the principal you owe is reduced from the moment your salary hits your account; thus reducing the interest charges.
No. 7: Interest Rate Drop? Don’t Lower Your Repayments!
When interest rates drop, your minimum mortgage repayments will generally drop as well. So, instead of reducing your payments, keep them at the previous payment levels. The added benefit of this tactic is that you won’t even notice the difference because you’re already used to making these payments. This is one of those mortgage finance tips you really need to take seriously.
No. 8: Your Fixed Rate Should Match Your Intended Period of Stay
If you already know that you’ll be leaving or selling your property after a certain period of time, then ensure that your fixed home loan rate matches this time frame. If, say, you intend keeping your property for five years, then don’t sign up for a 10-year fixed interest rate.
No. 9: Choose a Portable Home Loan
Very few people stay in the same home for thirty years, so it’s essential that you select a portable home loan. This means you can sell your home and purchase another without resetting the loan: this saves set-up and exit fees, which can be considerable.
No. 10: Create an Offset Account
Basically, an offset account is a separate savings account which is linked to your home loan account. The balance in your offset account is deducted from the amount you owe, so if your offset balance is $30,000 and your home loan was $300,000, you’ll only be charged interest on $270,000. Some lenders do require that you maintain a minimum balance in your offset account, so talk to your Mortgage Broker to find out if there are any other requirements.
No. 11: Maintain a Household Budget
Obviously if you can save money each month both before and during the term of your mortgage, you’re always in a better position to meet your mortgage repayments. There are no real secrets or tips to maintaining a good budget but this point had to be said.
No. 12: Stay in Contact With Your Mortgage Broker
Over the term of your home loan there are always going to be changes in both your own finances and in the home loan market. It’s always a good idea to stay informed by consulting your Mortgage Broker on a regular basis.