Mortgage Basics: Information for First Time Home Buyers

7 Strategies To Save You Money

Strategy 1 ... Choosing the right loan With so many home loans available, finding the best one to suit your budget, lifestyle and future plans is not an easy task. For instance, some lenders can offer significant savings in interest because they do not have the enormous infrastructure costs of major banks. Others are difficult to find because they do not have accessible branches or large advertising budgets. For many of us the purchase of our home or investment property is the largest financial commitment we will ever make. This makes arranging the most suitable home loan just as important. Selecting the right mortgage can save you thousands over the term of your home loan. We take away the confusion, particularly when the banks and lenders are very different in their approach to lending. By working with many lenders, we are able to match the best home loan to your needs and save you the time and hassle of shopping around. Here is an example of a family of two purchasing a new home with a deposit of $45,000 and a joint income of $57,000. Lets say that across all of the lenders we work with, the amount this couple would be able to borrow ranged from $245,000 to $338,000. As you can see the amounts offered are quite different. This is because the lenders have different lending criteria. Just because you fall outside of one Lender's criteria doesn't mean another won't be happy to have your business. So how do you find a lender for your home loan ? Talk to your loan officer before you arrange your finance. Our representative will be happy to show you your borrowing capability. Strategy 2 ... Beware Loan Myths and Pitfalls Make sure you know all the costs of entering into the loan and purchasing the property. These costs include conveyancing costs, application fees, valuation and legal fees, mortgage insurance (if necessary) and sometimes extra life insurance premiums. Make sure you know all the costs of early discharge of the loan. These days, very few people actually have a home loan for 25 years. In fact, due to people upgrading their property, refinancing and early repayment the average home loan now goes for only four to six years. The loans to be especially careful with are fixed rate loans and loans that have an initial capped rate or honeymoon rate. Fortnightly Repayments Paying your loan installments more frequently than monthly can produce savings in interest and an overall reduction in the loan term. Most Lenders will permit fortnightly or weekly repayments. The effect of this is to progressively reduce the loan principal each time a repayment is made, thereby lowering the interest accruing each month. This ultimately reduces the loan term by up to one-third. Note that Lenders calculate fortnightly and weekly instalments differently. Some will simply divide the required monthly instalment by two or four. Over the course of a year, this actually results in one additional full monthly instalment being paid, further shortening the loan term. Strategy 3 ... Variable or Fixed or Both? Fixing an interest rate has the advantage of surety. You know exactly what your repayments will be for the term. This is helpful for budgeting and it gives you the peace of mind that you will not be affected by interest rate increases. However, fixed rate products lack flexibility - they generally do not allow you to make extra repayments. They may also have high early exit costs. It is now possible to have the advantages of both. That is the security offered by a fixed loan with the flexibility of a variable loan. This is called a split home loan; part fixed, part variable. This allows you to hedge your bets so that if interest rates rise only a portion of the loan is affected. On the other hand if you wish to make principal reductions then they can be taken off the variable portion of the loan. Many people see this as the best of both worlds. Contact one of our friendly representatives about the best options and how they can work for you. Strategy 4 ... Investment Property Financing Many people have heard the term "negative gearing" but are unsure what it means. Negative gearing is a tax effective investment strategy where your rental income from your property is more than offset by your interest and property expenses giving you a net loss to offset against your other income (e.g. salary income), and thereby reduce your tax bill. Given a sufficient time period, your property price will (hopefully) be increasing in value so that in a sense you are making money whilst paying less tax. Investors traditionally prefer fixed interest only loans for budgeting and maximising the tax deductible repayments. Strategy 5 ... Consolidating Your Finances Significant savings are available by consolidating all your finances. The days of having a home loan, a personal loan or overdraft, a car loan, a savings account, a check account and owing money on credit cards are over. Financially, it is far more effective to consolidate all your loans under the one umbrella. As home loan rates are significantly lower than those for personal loans, overdrafts and credit cards but significantly higher than savings and check account rates it makes sense to consolidate everything into the home loan account. Talk to your loan representative about how to consolidate your finances and save. Strategy 6 ... Minimise Your Mortgage By effectively structuring your finances you can significantly reduce your mortgage. Some home loans now enable you to pay your salary directly into the loan and then draw your living costs out via your cash card and credit card. With a sensible personal budget this will enable you to repay your loan more quickly and save you vast amounts of interest. To find out how much interest you can save and how many years you can take off your loan, give us a call. Strategy 7 ... Getting Help from a Specialist As you can appreciate, financing is a specialist field and structuring your finances correctly can save you thousands of dollars each year. We represent a wide range of banks and lending institutions from which we select and arrange the loan that best suits you. This can be done quickly and with a minimum of fuss. And best of all, there is no cost to you.