7 steps to getting it right with your mortgage

1. Don’t borrow more than you can afford
Don’t push yourself to the point of discomfort.  Find a figure that you feel comfortable with and set that as the absolute maximum you should be committing yourself too.  For example, if you feel you can afford to pay no more than could $450 per week, than that’s what your mortgage should cost you!  Don’t fall in love with a house price; fall in love with how much it will cost you per week.  There’s no point having a huge mortgage if you can’t enjoy the simple pleasure like a night out at the movies, dinner or a well deserved getaway each year.      

2. Does paying your mortgage more frequently really save a lot of money? 
Good question!  There exists  a bit of an “old wives” tale that says if you make your home loan payments more often you will pay your mortgage off faster. Well that’s slightly true but it wont save you as much as you may think. It’s really got nothing to do with how often you pay, but more about how much you pay. Let me give you an example;  Let’s say your home loan repayment is $1,000 per month.  If you paid $1,000 per month divided by 2 to make it twice a month ($500 each payment) you won’t really save a great deal. However if you pay $500 a fortnight, that’s where you’ll make the difference. Let me explain;   your $1,000 monthly payment x 12months = $12,000 a year.  If you were to pay $500 x 26 fortnights this amounts to $13,000 a year.  It’s the extra $1,000 you are paying off in that year that makes a bigger difference. So my advice to you...is pay as much as possible whenever you can, every dollar counts.      

3. Don’t pay for something you don’t need. 
Over the past 17 years I have seen many changes in the types of home loans that are available.   For many people  they  won’t ever need all the features that some of these home loan products offer,  so make sure you’re not paying for something you don’t need. A good example of this is a line of credit.   In all honesty, I wouldn’t have one if you paid me!   Some lines of credit have higher interest rates, and higher monthly or annual fees.   Unless you are earning a significant income and have lots and lots of accounts that need to be paid on a monthly basis, my advice would be to not waste your money paying more for a line of credit. . Simply explain to your broker what you want your home loan to do for you and select a loan from his or her suggestions that is going to save you the most money. You can always change products later if your situation every changes.      

4. Don’t buy property as a way of making a quick buck 
There are many costs associated with buying and selling property, so these need to be taken into consideration.  For example, you’ll incur government fees and mortgage fees when your purchasing, then you will normally pay a real estate agent fees to sell, more government and mortgage fees and possibly even tax!. 

Like all good investments you need to hang on to your property for a while to make good money out of it.      

5. Think long and hard before you lock into a fixed rate 
If you’re considering locking into a fixed rate, make sure you do your sums properly to ensure there really is any benefit for the risk you are taking. Yes, there may be risks with a fixed rate which include; penalties you may have to pay if you need to sell the property in a hurry, rates start falling, you may want to pay additional amounts into the loan but your lender wont let you, or you may want those additional payments back that you have paid off and the lender wont let you do that either.  Do your homework first!   Have your broker explain the loan you have chosen completely before you get lured into a rate that may look attractive.      

6. Always pay principle and interest (P&I) if you can 
Over the years I’ve seen many people fall into the trap   off paying interest only on their home loan instead of P&I. Whilst this may be a good emergency measure if times get tough, I believe this is like changing your loan from a home loan to a credit card!  By that I mean something that never gets paid off if you’re not careful. Many people have credit cards that are maxed out because they only pay the minimum payments and never end up paying it off. 

My advice; if you can’t afford to pay P&I from the outset, chances are you can’t afford the loan full stop. The idea is to pay more off your home loan not less.      

7. Talk to your lender if you ever get in trouble 
Let’s face it, at times life throws you a curve ball.  Many people may find a point in time were their mortgage payment is late or they are simply struggling to meet this month’s payment. If at any time you find you are struggling with your home loan, make sure you talk to your lender to see if there is some way they can help. . If you ignore it, it will only get worse.  By keeping your lender informed, you will achieve a better outcome and chances are save hundreds or even thousands of dollars.


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