Mortgages and Financing

Hit the Principal Early

Over the first few years of your mortgage, it may seem that you are only paying interest and not reducing the principle at all. Unfortunately this is probably the case due to the effects of compound interest.

Extra lump sum payments or regular additional repayments can help reduce the capital, which means interest is calculated on a smaller amount and in turn will cut many years off the term of your loan.

Forgo Some Luxuries

It may be tempting to borrow a bit extra to buy that nice new plasma screen television and designer furniture but keep in mind you will be paying the loan over the next 25 to 30 years – long after the plasma becomes the equivalent of the record player today!

Pay Fortnightly

This is one of the simplest ways to reduce the term and costs on the loan. By splitting monthly payments in two and paying fortnightly you can make significant reductions in the overall costs on your loan. Over the year you will have paid the equivalent of an extra month repayment. On a $300,000 loan at 7.07% over 25 years this strategy alone could take over 4 years off the loan.

Pay Loan Fees Upfront

Some lenders will allow you to add fees and charges to the amount borrowed rather than making you pay up front.
This may seem like an advantage at the time but remember every extra amount borrowed now adds to the amount of interest you pay over the entire life of your loan.

Stick to a Budget

Spend the time to know what your incomings and outgoings are. Be realistic about your expenses and don’t forget to include those less regular ones like Christmas and birthday presents.

A good budget will allow you to pay for all the things you need (plus a few little luxuries) whilst ensuring you are still reaching your goals. Increasing the repayments on a 25 year, $100,000 loan at 7% by just $20 a week will cut the loan by 5 years and save almost $30,000 in interest!

Make Extra Repayments

Look at ways to free up an extra few dollars here and there. Do you have to buy your lunch every day? Maybe you could cut take away meals down to 1 night a week instead of 3.

Once you have freed up some cash, get it straight into your loan – the sooner it hits your account the sooner you will be reducing the amount of money that the interest is calculated on. Unexpected windfalls like a pay rise or tax refund should also be deposited straight into your home loan – you can’t miss what you never had.

Monitor Rates & Shop Around Keep yourself up to date with what’s happening in the marketplace. Rate changes, new products and changes in the market itself may allow you to negotiate a better deal. Contact Neil Lewis on +61 2 9570 7844 or email ngl@owenhodge.com.au to discuss how he may be able to help with your finance and getting the best deal for your circumstances.

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