Taking out a mortgage is the largest financial commitment that most Australians will make in their lifetime. If you invest in a property you could be making repayments for the next 30 years. This article will focus on a number of tips that can help you save interest on your mortgage and pay off the debt on your home at a faster rate.

1. Pay large sums into your loan

Rather than spending any large lump sums you receive, pay them straight into your loan. Think of larger windfalls as an excellent opportunity to reduce the overall interest on your loan and therefore the overall cost of your mortgage. Unexpected windfalls can include: ... (read more)

All Mortgage Brokers are not born equal. Like any service business, the quality of brokers’ offerings can vary from company to company and from broker to broker. This article will explore the qualities that you should avoid in a potential mortgage broker. Use this information to find a broker that will take the time to understand your situation and secure a mortgage product that’s right for you. ... (read more)

Whether you are getting set to buy your first home or you are preparing to re-mortgage your home, it is important that you do so with the best deal available. You don’t need to be an expert in using a mortgage repayment calculator before you can find a great deal out there. Instead, you need to understand some of the steps that would help you towards having your home mortgaged at the best rates.

 

In order to avoid being ripped off, you need to take your time and compare mortgages from a few vendors. This needs to be done correctly, if you desire a good result. You should also understand that the type of mortgage you choose will go a long way to determine the rate you pay. Other factors that might impact on rates include your deposit, credit rating, and others. Listed below are some of the steps that would help you engage in successful and great comparison shopping. They are as follows:

 

Understand what you want; Before you take the first step of comparing prices, you should first determine what you actually want. Are you settling for a fixed rate mortgage or do you intend on going for a tracker mortgage? You should understand that since a fixed rate offers more security, the price tends to be higher than a tracker mortgage. It is your decision to make but guidance is available.

Compare related offers: In order to ensure that you get the best rates, whether you are proficient in using a mortgage payoff calculator or not, you should only compare related offers. Don’t compare the price of tracker mortgage from one vendor and go for fixed rate with another vendor. In doing this, you will only end up more confused and struggle to make an informed decision. Instead, make related comparisons. You should also know that even though your qualifications are not altered, different vendors will offer you different prices and terms. This is especially because they use varying business policies and models.

Opt for a Mortgage Broker: Most times, we just have to leave certain things for the professionals, including comparing quotes for a mortgage. With a broker, who is certainly more versatile with utilizing a bank mortgage calculator, you might just be able to land a great deal with a reputable lender. This broker acts like a middleman between you and the lender and depending on what you want, you can be matched with a lender that has loan products that expressly fit your home mortgage needs.

Go for Relevant Rates: One of the deciding factors when you are out there shopping for a residential mortgage is the amount you are able to deposit. This means that the rates you are offered when you are making a 30% deposit will definitely be better than the rates you will be offered when you are making a 10% or lesser deposit. When you understand this, you will surely not waste your time comparing quotes you will definitely not qualify for.

Work out your expenses: When you are comparing quotes for a mortgage, don’t just think about the mortgage deposit. There are other expenses you should be paying attention to as you get ready to use that simple mortgage calculator. Some of these expenses include but are not limited to solicitor’s fees, moving costs, property survey fees, etc. With this, you should be able to work out the level of deposit you can afford to put down.

Work out all costs related to the loan: In order to avoid any last minute surprises, you should take your time to work out every cost related to the mortgage loan. You want to know what you are getting into and as such, you should have a good knowledge of the monthly repayment amount, the interest rate, lender fees, and others.

Wrap it up: After you have made your comparisons, it is time to lock up your rates and get things wrapped up for good. Having made your calculations with the mortgage calculator, the next step is requesting a written “rate lock” from the potential lender. This is a form of written agreement that stipulates the interest rate, the interest price, and period of time it covers. With this lock-in, you are fully protected from any form of rate increase while your application is being processed. While some lenders go ahead and charge fees for the lock-in, others do it without any additional costs. It varies from one lender to the other.

... (read more)

This post is a response to Saundra Latham’s great article about the best home equity loan rates for 2016 (US), posted on the The Simple Dollar.

Paying off a mortgage results in more than just owning a home. The value of your home is a form of savings that provides negotiating power for other loan arrangements or investments. For many people, the downside of making regular mortgage repayments is the lack of ready cash or additional savings potential. A home equity loan can provide the solution, by allowing home owners to borrow money against the value of their home. This money can be used for any number of home improvements or other purposes.

Owning a home remains an achievable ideal for most Australians. Values have soared, but it’s worth noting that many sought-out neighbourhoods were fairly humble settlements just a couple of decades ago. Interest rates also remain low, often at 4% or less, providing lower repayments and a positive outlook for prospective home buyers.

The initial climb onto the property ladder can be slow, but wages do incrementally rise, and every passing year sees an increasingly large chunk of the outstanding loan principal paid off. During this time, the value of your home (investment) will significantly increase, and maintaining that investment could involve an injection of serious cash. A home equity loan is the answer.

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What is a home equity loan?

Firstly, home equity is calculated as the amount you owe subtracted from the value of your home. In other words, if your home is valued at $400,000 and you owe $100,000, your home equity is $300,000. This is potentially the amount you could borrow, taking into consideration your ability to make repayments for the term of the loan.

The rules governing home equity loans in Australia are relatively simple. If you have commenced paying off a mortgage and possess over 20% equity on the property, you have a good chance of a home equity loan approval. The amount you can borrow is also determined by factors such as income and personal finances. Any encumbrances on your property could also affect the application.

 

What is a closed-end home equity loan?

A home equity loan can be either closed-end or open-ended. A closed-end loan is ideal for making a single purchase with a set amount of money. In essence, a closed-end loan is a lump sum payment with similar conditions to your initial mortgage, and is often used for major home renovations. An open-ended home equity line of credit (HELOC) is best if you require ongoing funds that are available to replenish and redraw upon, similar in function to a credit card but with greater borrowing power.

Home equity loan benefits:

Less processing time

The money can be used for almost any purpose

Competitive interest rates

HELOC loans facilitate deposits and withdrawals for ongoing access to funds

... (read more)

Paying off a home loan mortgage takes a dedicated effort over a number of years. During this time your personal circumstances might change, finances could fluctuate, and lenders will vary their interest repayment rates according to financial markets. As a borrower, you may be on the lookout for a better deal, but there are a range of factors to consider before moving ahead and refinancing your loan.

Refinancing your home loan is a strategy that could save you thousands of dollars in the long run. It is a valid and sometimes necessary approach to ensure you are getting the best possible deal, although there are also barriers that could make refinancing your home loan a bad idea.

Refinancing is a good idea in some situations:

Your financial situation changes dramatically

Your lender isn’t offering a good rate compared to competitors

A need to free up some money for other projects or another loan

You need to consolidate debts such as credit cards

It’s a good time to switch to a fixed or variable rate of repayment

... (read more)

There are a number of factors that will determine the amount you can borrow for your home. Before commencing the search for your ideal property, you will need to get an accurate idea of how much money you have to work with.

Your bank or credit provider is taking a calculated risk every time they lend money. In order to minimise the risk they will require proof of your ability to repay the loan, and an up-front deposit to protect themselves against any loss if the loan is terminated early.

 

Your home loan borrowing capacity

As the borrower, you will need to understand your borrowing capacity. This is an amount that you can comfortably repay according to your financial situation. Calculations that determine your borrowing capacity are easy to make by using an online calculator. Your lender will require documents that verify your calculations before commencing with the loan application and approval.

Your borrowing capacity will take into consideration:

• Your annual income
• Monthly expenses
• The type of property
• The loan term (duration of the loan repayments)

Most banks and credit providers work on the principle that your repayments are no more than a third of your gross salary.

 

Approval on principle

You may have already started to search for a new home, but still have no idea when to apply for a loan or how much to ask for. Your loan calculations will provide a guideline for getting a conditional approval (approval in principle) from your bank. The approval in principle will assist in a couple of ways:

• Real estate agents will treat you as a serious buyer
• You will understand exactly how much you can borrow and the deposit required

Approval in principle is usually valid for three months, giving you time to look around and investigate potential properties. Normal lending criteria is taken into consideration for final loan approval even if it has been approved in principle. You will require up-to-date documents that verify your income. Identification and credit checks are also a part of the process.

 

Applying for a home loan

It’s a good idea to know who you are dealing with when borrowing large amounts of money. For this reason, most borrowers prefer to interact directly with their bank manager or representative. If you are taking out a home loan for the first time you will surely have questions that are best answered in person. It’s important to fully understand your loan and any conditions that are attached to it.

In many cases, you can also apply for a loan online. It is simply a matter of providing your bank or credit provider with all the requested documentation, and they will consider your application and let you know if it has been successful. You can also call your bank over the phone and make some initial enquiries that will help you determine the best way forward.

 

Your deposit

The more you pay as a deposit on your new home, the less you will need to borrow. Saving a larger deposit can give you more flexibility of choice, either by purchasing a more expensive home or by making your repayments a smaller percentage of your income. A loan term of 25-30 years is quite a large chunk of time, and nobody wants to be stretched financially over such a long duration.

If your present rental or living situation is comfortable, and your savings are building nicely, it’s worth considering keeping your home buying plans on the back-burner for another year or two. A larger deposit will also prove to your lender that you have good money management skills and the restraint required to make regular loan repayments.

Your lender will generally expect your deposit to amount to around 20% of the house price. If you take out loan insurance (an extra monthly expense) the lender could allow you to borrow up to 95% of the house price.

The information in this article is a guideline only. Contact your preferred lending institution for further information.

For most people, buying a home is the most significant financial investment they will make. A sizeable loan is usually required, and repayments are generally spread out over many years. Therefore, it’s important to also invest a little time into understanding your options and getting a deal that suits you. Let’s begin by learning the basics of how a home loan works.

Before discussing the different types of home loans it will help to understand what all home loans have in common.

The application process: You will need to show your bank manager or lending institution that you are borrowing within your means and can afford to make the repayments.

Your loan is secured by your home: In other words, if for any reason you fall behind on loan repayments, your bank or lender has the legal right to sell your home to cover their investment.

The deposit: A percentage of your new home’s value is usually paid up-front in order to secure the loan.

It’s easy to get excited when inspecting properties, and it’s not uncommon for people to dream beyond their means. You will need to work out how much you can afford to borrow before shopping around for your home. This will give you a realistic picture and help you avoid disappointment later on. Now it’s time to ask yourself the hard questions:

How much deposit do you need?

• By making a larger initial deposit you can borrow less and therefore have lower repayments.

Is it your first home?

If so, you could be eligible for a one-off payment from the First Home Owner Grant scheme. It’s also worth investigating a First Home Saver Account which assists with a combination of government contributions and tax concessions.

... (read more)

Understanding how interest affects your home loan is an important step in the loan process. Even if the interest rate remains relatively low it will still add up to a large portion of your total repayments over the duration of a 25-30 year home loan term.

Understanding interest

Many people misunderstand how interest is calculated. For example, when investigating a $100,000 loan at 10% interest, a novice borrower might think the total amount of interest to be paid will be $10,000.

The above calculation would be accurate if the $100,000 (plus $10,000 interest) is paid off in one year, as the interest rate is a yearly cost. However, home loans are a long term commitment where repayments chip away at the amount owing over time.

Putting it in perspective: a typical repayment rate on the $100,000 loan at 10% interest could be $1,000 per month, which would add up to $12,000 paid over one year. In other words, you will have paid $10,000 interest plus $2,000 off the principal amount. This means that in the second year of your repayment schedule you will be paying 10% interest on the remaining $98,000 of your loan.

It’s slow going at first, but with each passing year your $1,000 monthly repayments will more rapidly pay off the lowering interest, plus a greater percentage of the principal amount. In other words, you need to be patient to see results, and the last ten years of your loan repayments will be an exciting time as you watch the amount owing quickly disappear.

 

Reducing interest on your loan

There are various strategies that can help to pay the loan off faster and reduce the overall amount of interest you pay.

Make fortnightly repayments: If you halve your monthly repayment and pay that amount fortnightly you will be making two extra payments every year. This will more speedily reduce the amount you owe and you’ll also pay less interest over the duration of your loan. If you use the above strategy on a 30 year $250,000 loan at 7% interest per annum, you will save around $85,000 in interest and the loan will be paid off more than 6 years ahead of schedule.

Increase your regular repayments: If you have money to spare, this method will achieve similar results to the above equation. By paying around $50 extra per fortnight on your $250,000 loan you will have it paid off almost 5 years ahead of schedule.

Shorten the duration of your loan: Using the same $250,000 loan example and switching from a 30-year term to a 25-year term will save you close to $70,000 in interest costs.

Make lump sum payments: If your financial position improves there may be ready cash that can be used to pay off the loan. Even $15,000 paid toward the $250,000 loan will reduce the loan duration by close to 5 years and save you more than $20,000 interest costs. Always check the conditions of your contract though, as there could be a fee attached to lump sum payments if you are on a fixed rate payment schedule.

Another way to save is by keeping your monthly repayments the same even if the interest rate drops. Avoid the temptation to lower your monthly or fortnightly repayments and you will reduce the principal faster while also saving on overall interest costs.

 

Fixed interest rate versus variable interest rate

By far the two most common type of home loan contracts involve either fixed or variable interest rates. They both have individual advantages (and disadvantages) and there may be times during your loan term that you switch between the two.

Variable rates: Your variable interest rate will go up or down according to overriding financial conditions. Your lender has the right to raise or lower the variable rate at any time. On the plus side,  you have the option to make extra payments without incurring any fee.

Fixed rates: Your fixed interest rate will be locked in for a period that is typically between one and five years. You have the benefit of knowing exactly how much your payments will be during this time. On the downside, you won’t benefit if interest rates fall, and you may not be able to make extra repayments on your loan while you are locked into the fixed rate.