August 08, 2011
Balancing lifestyle desires with budgeting necessities is a greater challenge as living costs rise and the economy looks uncertain. How are you preparing to cope with tougher times?
Australia's largest independently-owned mortgage broker, Mortgage Choice suggests thinking hard about making changes to your home loan situation now to reap rewards over the long haul.
Spokesperson Kristy Sheppard said, “Revisiting your loan repayment strategy during a tumultuous period such as the one we are experiencing now will help prepare you for what may lie ahead.”
“For example, increasing your repayments by any amount above the minimum will reduce the principal loan amount owed, thereby reducing the loan's term and interest paid over its lifetime. So too will contributing lump sum payments such as your tax return or end of year bonus. This builds a safeguard, helping prepare your financial position for unforeseen changes.
“Importantly, if misfortune doesn't come your way you will be living debt free sooner. This can open the doors to other investment opportunities from which you can build a stronger financial future.”
Mortgage Choice offers the following helpful hints to get you ahead:
Round 'em up!
Consider rounding up your home loan repayment amount. Take a loan of $350,000 at 7% over 30 years. If the monthly repayments of $2,329 were rounded up to $2,500 at five years in and that continued until the end of the loan term, the loan will be repaid approximately four years earlier and the interest owed is reduced by over $69,200 (if all loan aspects remained as is).
Visit your loan more frequently
Depending on the loan type and lender, you may save thousands of dollars in interest by paying a loan fortnightly. For example, a borrower with monthly repayments of $2,000 will pay $24,000 off their loan by year end. If they paid fortnightly, by splitting their monthly repayment in half and making repayments of $1,000, they will pay $26,000 as there are 26 fortnights in a year.
Take advantage of extra funds
An offset account attached to the home loan account acts as savings that reduce the interest accumulated on the loan amount. For example, if the above-mentioned loan has $5,000 deposited in a full offset account from day one, the term is reduced by approximately 14 months and the interest owed is reduced by around $33,856. Note some lenders offer partial offset only.
Health check it
Review your loan and decide if you need all the features you may be paying a premium for. Compare it against others by getting a home loan health check from an experienced mortgage broker, to see if you can save money by negotiating a better deal with your current lender or by switching lenders.
Weigh up good vs. bad of switching
When deciding whether to refinance take a good look at the pros and cons, including the costs and what you really need as opposed to want. Remember to factor in all loan aspects, like features, rate, repayment type and frequency, accessibility and fees. It may be cheaper to keep your existing loan rather than pay new loan costs such as application fees, lenders mortgage insurance, registration fees, account fees, discharge fees, etc. Check with your broker to help you make the final call.
For further information or to arrange an interview, please contact:
(02) 8907 0472 or 0407 416 124