Mortgage Tips to Cut Costs
Tip 1: Get a cheaper interest rate
Probably the single biggest opportunity to reduce your mortgage is to find a cheap interest rate from the start. Shop around with major banks and other lenders such as credit unions and building societies.
But a word of warning. The benefits of a cheap interest rate may be nullified if you are saddled with high fees and an inflexible product. So do your homework and find out which mortgage offers a cheap interest rate with lower fees and a combination of home loan features that you need. Your Liquidity Finance mortgage broker can help with this.
Tip 2: Get a loan with a flexible payment structure
If you plan to make extra repayments, make sure your mortgage allows you to make your regular payments plus one-off repayments without penalty. Choose your features wisely because they will cost extra.
Tip 3: Make extra payments as early as possible
You may not realise that most payments made at the beginning of a home loan go towards paying off interest, not reducing the principal of your mortgage.
So any extra payments you make from the very beginning go towards reducing the principal on your loan, which reduces the pay-back period and total interest payments.
Tip 4: Make your first mortgage payment on settlement date
This is another excellent example of how making early payments can reduce the principal and future interest repayments on your mortgage.
Tip 5: Make more frequent repayments
Where interest is calculated daily, making payments more frequently - whether fortnightly or weekly - cuts on the interest on your mortgage. This is because you'll be making the equivalent of 13 monthly repayments each year, which reduces the principal and term of your loan.
Tip 6: Paying income directly into your home loan
As interest is calculated daily, getting your salary credited directly to your home loan account reduces the principal you owe from the moment your salary is in the account. This in turn reduces the interest you are charged.
Tip 7: Don't lower repayments if interest rates drop
Your minimum mortgage repayments will usually fall if interest rates drop. Rather than reducing your payments at this stage, maintain your previous payment levels. This particular method has an added benefit in that you will hardly notice the difference since you are used to making payments of that amount.
Tip 8: Match your fixed rate to your intended period of stay
If you intend to live in a property or sell it after a specific period, it makes sense to match your fixed home loan rate to this timeframe. So if you intend to keep a property for five years, avoid getting a 10-year fixed interest rate.
Tip 9: Make your home loan portable
Most people don't live in the same property for 30 years or more so home loan portability is an essential feature. This allows you to sell one home and buy another without having to reset the loan - saving you the cost of set-up and exit fees.
Tip 10: Get an offset account
An offset account is essentially a separate savings account linked to your home loan account. The balance in this account is usually subtracted from amount you owe. So if your balance is $20,000 and your home loan was originally $300,000, interest is charged only on $280,000. Keep in mind some lenders require a minimum balance in these accounts. Consult your Liquidity Finance mortgage broker to find out if lenders have other requirements.
Tip 11: Get your household budget in order
Most singles or couples who earn more than $90,000 could save about $500 a month just by trimming little luxuries such as smoking, drinking or that extra cup of coffee during the day. Utilise your budget both before and during the life of your mortgage to ensure you meet your mortgage repayments comfortably.
Tip 12: Keep in touch with your mortgage broker
There may be many changes in the home loan market and your own finances over the course of your home loan so it is wise to stay informed and consult your mortgage broker regularly..
Remember, some of these changes may be opportunities to own your home sooner!