18 Ways to Reduce Your Mortgage Loan Part 2
Written by: Kevin Saunders
9. Stay informed - don't forget about your mortgage - visit
With any long-term commitment, there is always the temptation to
let your mortgage roll along, make your repayments as they fall
due and think as little about it as possible. As long as you
keep up the repayments, there's not much else you need to do,
This attitude can be a big mistake. Keep yourself up to date
with what's happening in the marketplace. You might find that
there's an opportunity to put yourself well ahead of the game.
Rates change, new products and changes in the market itself may
allow you to seize an opportunity or negotiate a better deal.
Stay informed and stay ahead of the game.
10. Get a cheap rate and invest the difference
When interest rates are low, like now, it is usually safe to say
that inflation is also low. Thus, bricks and mortar may not be
the best place to invest. Try getting the cheapest home loan you
can find and make the minimum repayment. This allows you to use
the extra cash to invest in other, more profitable areas.
You may find that the return you get on shares or some other
type of investment means that you have created a nice little
nest egg which you can use to pay off a bigger chunk of your
home loan than you might otherwise have been able to do.
But beware - high returns often mean high risks. Before
undertaking any investment, invest in a consultation with a
qualified financial adviser.
11. Run an offset account
Instead of earning interest, any money you have in your offset
account works to offset the interest you are paying on your home
loan. For example you may have a mortgage of $300,000 at 6.5
percent and an offset account with $50,000 in it earning 3
This means that $250,000 of your loan is accruing interest at
6.5 percent but the rest is accruing interest at just over 3.5
percent (6.5 percent on your loan less the 3 percent the $50,000
in your offset account is earning). Imagine how much you can
Of course, the best sort of offset account pays the same rate as
your loan (100 per cent offset).
12. Pay all your mortgage fees and charges up front
Some lenders allow you to add to the amount you borrow instead
of coming up with cash for your upfront costs. While this can
seem a blessing try to avoid doing this. Consider the following
Borrower A borrows $300,000 over 30 years at 6.5 percent. Her
upfront costs are $1,000 but she has enough cash to make sure
she can cover these. Her total repayment over 30 years will be
Borrower B takes out the same loan but doesn't have enough cash
to cover the upfront costs. So he borrows $301,000, at the same
rate. Her total repayment over 30 years will be $684,907.
Two thousand odd-dollars might not sound like a huge amount but
what could you buy with it if it stayed in your pocket?
13. Pay your first instalment before it's due
With most new loans, the first instalment may not become due for
a month after settlement. If you can manage it (and your lender
will let you), pay the first instalment on the settlement date.
If you do this, you will be one step ahead of the lender for the
term of your loan. Every little bit counts.
14. Shop around and make sure your lender knows it
One of the most powerful tools you can have in the search for
the best home loan is information. Make sure you have rung half
a dozen lenders and brokers (as well done some internet
research) before you start talking to your preferred lender
about getting a new loan or refinancing your existing loan.
Make sure you know what rates and features are offered by each
of your lender's competitors on comparable products. Be ready to
tell the lender what you are looking for and don't be afraid to
ask for extras. If they want your business, and know you know
what you are talking about, they may be prepared to work that
little bit harder to get your business.
Don't be afraid to walk out if you aren't getting the best
possible deal you can.
15. Make sure your loan is portable
If there is any chance that you will move house during the
course of your loan (and let's face it, there is a strong
chance), make sure that your lender will allow you to transfer
your loan to a new property and that it won't charge you the
earth for the privilege.
Be careful. If you sell up and buy a new house, you could find
yourself down thousands in discharge costs on your old loan and
establishment fees on your new one.
16. Avoid bridging finance
Someone once said bridging finance is so called because it
allows you to "pylon" the debt. The joke's appalling, but so is
bridging finance. Unless you get your timing right you could
find yourself with two home loans at the same time - with the
bridging finance element costing you an extra couple of percent
premium on the standard variable rate.
Consider using a deposit bond or selling before you buy, as it
will be much more cost effective for you than another loan.
17. Choose the loan that suits your needs
Choosing a loan is about knowing what you want. Draw up a table
of potential home loans and rank them. Make a list of all the
features that are important to you and rank them according to
importance. Give each feature a score out of 5 - one for
unimportant right through to 5 for indispensable.
Use this technique for ranking the loans on offer and pretty
soon you'll see the one that's right for you. Remember,
different loans have different purposes so you need to match a
loan to your need. Taking out an interest only loan suitable for
investors if you are planning to live in the house is just
Ditching the features you don't need can save you up to 1 per
cent on the interest rate of your loan. Over 30 years that's a
whole lot of money you've just saved yourself.
18. Don't be afraid of smaller lenders with cheap rates
Since the advent of the mortgage managers over the past five or
six years there's been a lot of talk about smaller and
"non-traditional lenders" and how they have forced interest
rates down. With the property boom, plenty of opportunities
sprang up for smart lenders with low fees willing to take on
traditional lenders and many have done very well indeed.
Some borrowers worry about what might happen if their lender
gets into financial trouble. Keep in mind that you've got their
money - so don't worry too much. There are some smaller lenders
whose names might not be readily familiar but whose rates might
be enough reason to get in touch.
Be wary, however. Some of these smaller lenders can have huge
hidden fees and charges. It is true that the interest rate might
be much lower, but in many cases, they exit (or penalty) fees
can be very high if you refinance or pay off your mortgage in
the first couple of years. Of course, if you're planning on
staying with that lender for some time, then these fees will not
impact your pocket at all.
About the author:
Kevin Saunders is one of the founders of MortgageLoanHints.com,
bringing you tips and hints for paying off your mortgage
quickly, helping you to use the power of a mortgage loan to
increase your wealth and learn to take control of your own
finances. You can see more of Kevin's articles here:
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