Eight ways to save you a jar of money
Owning your home faster is just eight steps away. Are you ready to take them? Sophie Elsworth takes you through these seemingly simple steps that have the potential to transform your life, take control of your finances and set your family up for a secure
1 CHECK YOUR STATEMENTS Check your most recent mortgage statement to find out the rate you are paying. This should be on your latest paper statement or you will find it on your online banking account. It is one of the most important pieces of information you need to know about your mortgage because it can mean the difference in tens of thousands of dollars in interest charges if you are paying an inflated interest rate. Otherwise ring your bank directly and ask them to help you with these details. 2 COMPARE THE COMPETITION If your current rate is over 4 per cent per annum go to a comparison site and start looking for a better deal. Interest rates are continuing to move outside of what the Reserve Bank of Australia board does so you need to regularly be checking your rate and other deals available. Sometimes your bank may raise your rate without your realising. For both owner occupiers and investors there are plenty of deals available with a “3” in front. Fixed and variable rates differ so depending on your circumstances one or the other or a “split” loan may suit you best. 3 RING YOUR BANK AND DEMAND MORE Ring your bank and ask for the retention team. Tell them you have found a better deal and you want to move your mortgage (see script). But make sure you are armed with the correct information first. This involves finding a lender that is cheaper and knowing the rate they are charging. Or it could even be the rate your own bank is offering new, not existing customers. But be prepared to be asked a few questions about the other offer, this will give you some good bargaining power. 4 PAY THE SAME ONCE YOU’VE NEGOTIATED DOWN Once you have negotiated a lower rate, keep repaying the same amount. If possible try to set your repayments higher than the minimum amount, particularly while interest rates are so low. This means you will be able to cut into the principal amount much faster and reduce your interest costs. Use an online mortgage calculator or ask your lender how much difference can be made by paying extra each repayment. You will be surprised how quickly you can bring down the principal and make serious headway into your loan.
5 PAY DOWN THE PRINCIPAL If you are only paying off the interest, switch to paying interest and principal. Paying interest only on a home loan is a tactic used by property investors to access a property’s equity in a rising market, without being encumbered by paying down the principal. However, some owneroccupiers choose to pay interest only for a period of up to five years before the loan rolls into the normal principal and interest repayment plan.
This is dangerous because it suggests you have a mortgage you can’t afford. You might argue that it is temporary until you find your feet, but what happens if interest rates rise in that time or you suffer a different financial setback? You should only buy a property that you are comfortable paying off, not only at full repayments, but with a little extra on top so you have a rainy day buffer. 6 REDUCE INTEREST PAYMENTS BY HAVING A LINKED OFFSET ACCOUNT Linking a savings or transaction account as an offset to your mortgage means any money in that account is offset against your loan. The lender charges you interest on the difference only, which helps pay the loan off faster.
For example, if you owe $300,000 on a mortgage and have accumulated $100,000 in a linked account, you are only paying interest on $200,000.
The more money in your offset account, the less interest you pay, so put as much of your salary in there as you can, plus any windfalls like tax returns, gifts or inheritances and take years and thousands of dollars off your home loan. 7 MAKE FORTNIGHTLY RATHER THAN MONTHLY REPAYMENTS Loan repayments are generally calculated on a monthly basis, but ask your lender if you can pay fortnightly instead. You then pay half your monthly repayment every fortnight. Because a month is longer than four weeks, you actually end up making the equivalent of one extra monthly repayment per year.
Assuming your monthly repayments were $3000, after a year you would have paid $36,000. To pay fortnightly, you split your monthly payment in half, making a fortnightly payment of $1500.
There are 26 fortnights in a year, so you pay $39,000; an extra $3000. This amount comes directly off your loan principal, and reduces the amount on which future interest will be calculated, allowing you to pay the mortgage off sooner. 8 USE REALESTATE.COM.AU’S ONLINE LIVEABILITY TOOL Realestate.com.au has a one-stop shop allowing potential home buyers to search, find, and complete conditional approval for a dream home purchase.
You simply visit the site, enter some personal data and the tool shows you which properties you can afford to pay off, in which neighbourhoods, while keeping your lifestyle intact.
Your financial capabilities are put under a stress test based on incoming and outgoing expenses and REA’s Liveability Index shows you if you can meet mortgage repayments on a scale from easy, to stretched, to struggling. You can also get online conditional approval 24-hours a day, seven days a week from NAB, to empower you to bid on properties.