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Monthly Savings Challenge – June

Mortgage Overhaul

Shopping around a mortgage requires a great deal of caution and a lot of paperwork, yet most of the people prone to making mistakes overlook some crucial considerations. Whether you already have a mortgage or are looking to get one you’ll need to be aware of these points, they could save you thousands of dollars! Start with the Iselect or Your Mortgage websites to find out exactly where you stand.

  • Discard the honeymoon and other alluring deals: Be cautious about lenders bearing gifts. Honeymoon or introductory rates have always been a successful marketing tool for lenders. You get impressed by the cheap interest rate offered for the initial period and you fall into their trap. Once you are in, you’ll find you’re paying higher rates of interest than you need.
    You must clearly understand the basic fundamental principle of a honeymoon period. You are entitled to enjoy the benefits only for one or perhaps two years and you end up paying the high variable rate of interest for the next 15 years or so. Make sure you have understood the terms and conditions fully before stepping into a honeymoon rate process because refinancing to a cheaper loan may cost you a whooping exit penalty.
  • A perfect repayment idea: It’s always wise to make repayments at a higher rate than required by the financial institution. Get rid of the mortgage commitments as quickly as possible. Say you signed the loan at a low interest rate and decide to pay 2 or 3% more to your required repayment amount. This will not only help you to pay off the amount quickly but also save you a bundle of money. If paying more for your loan now is out of the question then beware when interest rates rise, you’ll have no leeway.
  • Frequent payments is the key: One of the best and simplest ways for reducing the term and cost of your total mortgage is to make more frequent repayments than you are committed to. Start paying fortnightly rather than on a monthly basis. Split up your monthly payments into two and pay every fortnight. You won’t mind paying these amounts but they could make a big difference in payments and years over the term of your loan.
  • Focus on the principal : The most unfortunate effect of compound interest is that it keeps on accumulating. You also feel you are only paying interest whereas the principal is still intact. Make your best efforts to pay off some of the principal early int he term of your loan. Paying an extra lump sum or additional repayments will also help you to cut back on the term of your loan. Think any windfalls or tax returns.
  • Go for a package deal: There are a myriad of financial packages offered in the market. Talk to your lender and acquire some wonderful deals or benefits such as a fee-free credit card, discounted home insurance, a free consultation with a financial expert and so on. Though all these benefits might seem petty, everything counts. Nothing is free in this world so why not take advantage of something valuable with little negotiations. So dot all your i’s and cross all your t’s before going ahead.
  • Consolidation leads to protection: Protect yourself against the rising interest rates by consolidating all of your debts under the umbrella of your home loan. Interest rates on your credit cards and personal loans are much higher than home loans. Consolidation enables you to pay off all your debts under the home loan interest rate. But to keep this under control you mustn’t have additional debts on other credit cards etc. This will only increase your debts, not reduce them.
  • Mortgage –A key financial product: Use your mortgage as a key financial product. It means you have to handle only one account for paying off all your expenditures by credit cards or cheque, drawing money from and also making your mortgage repayments. This type of account really accelerates the speed of repaying your loan. Because of the reduced principal, you pay low interest which ultimately speeds up the whole process.
  • Switch to a new loan at a lower rate: Switching your current loan and going for a new loan at a lower rate enables you to save thousands of dollars and many years. But proper research is required in order to do this successfully. You need to determine what costs you have to incur in switching loans. You may have to pay an exit fee for your old loan and stamp duty and other charges on your new loan. Don’t just impulsively jump on the bandwagon, contact a free mortgage broker and they will help you decide which loan is best for you and work out exactly what the costs and fees will be.
  • Cut back on those minor luxuries: You must be wondering how giving up your favourite snacks, quitting smoking and drinking can turn out to be a big saver in terms of repayments. But trust me cutting back on these minor luxuries can play a crucial role in maintaining your health as well as will reap huge financial benefits. Managing your money overall is the key to reducing your larger debts.
  • Stay up-to-date and well informed: Making your repayments on time will not only keep your mortgage in tact it will also provide good financial credit for your future. Keeping up to date with what is going on in the mortgage market can also save you hundreds if not thousands on the years ahead. If you see a better deal elsewhere then contact your bank for the same deal – they should negotiate with you. Rate changes, new product launches and other fluctuations take place regularly and negotiating a better deal by knowing the market will save you money.
  • Obtain a cheap rate and invest the sum: When the interest rates are low, getting the cheapest loan you can and making the minimum repayments required lets you invest any extra cash you have in other possible financial areas. This wont work for everyone but a qualified financial advisor can help you with these decisions. It’s better to invest in the consultation fee of the expert than to go belly up.
  • Pay mortgage fees and other charges upfront : It seems a good idea to add up the mortgage fee to the total amount but it could cost you a lot more in long run. So it is highly recommended to pay off any mortgage fees and other charges upfront.
  • Stay ahead : If you could manage it, try to pay your first installment before the due date. This simple act enables you to stay a step ahead of your lender for the entire term of your loan.
  • Make sure you are not fooling around: You have to have a complete and detailed knowledge about various home loans and their offers. Make sure that your lender knows that you are nobody’s fool. Talk and make relations with reputed lenders and brokers before you start working out with your preferred one. Let your lender know exactly what you are and are not expecting from them. Don’t hesitate to ask for extra features or benefits. If you don’t ask, you wont get.
  • Portability matters: We normally do not bother about this particular aspect but it’s something which really needs your attention. If you ever move house during the course of your loan, make sure that your loan can be transferred to the new property. This privilege won’t charge you much but matters a lot.
  • Tailor your needs and choose a loan accordingly: First things first. You should know what you want. Undertake a study about the various home loans available, rank them and determine which one suits you the best. Different loans have different purposes so it’s you who needs to decide which loan is meets your requirements. Dumping the feature you don’t want can save up to 1% on the interest rate. And at the completion of the loan term, you can save a lot of money.
  • Get in touch with the small lenders as well: Due to the advent of mortgage managers in the market lenders have been forced to reduce their interest rates/fees. Do not be afraid to get in touch with smaller, less known lenders, as they can provide some amazing opportunities. Their names usually don’t matter to you but their offers do.
  • Ready to be surprised: Specific professional groups and members of professional organisations are sometimes entitled to special discounts. Ask your lender whether you fall into a special category.