Top tips to get you home sooner
It is estimated that 469,000 households will be suffering some degree of mortgage discomfort by December and the number of those in severe stress (facing a potential sale, foreclosure or forced refinance) could be as high as 267,000*.
How can borrowers at risk of mortgage stress reverse the trend, save money and own the property sooner?
Spokesperson for Mortgage Choice, Kristy Sheppard said, “There are shortcuts that can help borrowers avoid mortgage stress, reduce their loan term and the interest paid. It’s about taking control of their finances by managing their mortgage instead of letting it manage them.”
“Avoiding mortgage stress is often a greater challenge for new borrowers, many of whom are adapting to a budget for the first time. Of course, some common causes of mortgage stress are higher interest rates and rising living costs. However, another very common cause is over-indulgence in post-mortgage debt.
“Mortgage Choice’s 2010 Recent First Homeowner Survey revealed 15% of respondents had taken on within the first two years what they saw as ‘significant’ post-mortgage debt. Of those, 70% had spent between $0 and $20,000, 26% had racked up between $21,000 and $50,000, and 4% had really splurged, with extra debt of $51,000 or more.
“If these borrowers and others facing a similar situation want to better their mortgage situation they need to be proactive in their repayment strategy. By maintaining regular repayments above current interest rates, being disciplined in keeping to budget, making extra contributions, fully utilising the loan facilities available and regularly ‘shopping around’, borrowers can potentially fast track their way to outright ownership.”
Australia’s largest independently-owned mortgage broker, Mortgage Choice recommends these top tips:
Contribute to your change
Paying a little extra every month can have a big impact in the long run. Based on a loan of $300,000 at 7% over 30 years, if you round the monthly repayments of $1,996 up to $2,050, the loan will be repaid approximately one year and eight months earlier, saving you over $25,000 in interest.
Make a dent
Making a lump sum payment (big or small) into a loan can make a substantial difference. If you deposited your tax return of, say, $500 into the above mentioned loan, it would reduce the overall term by one month and the total repayments by just over $2,350. Doing so annually would make a significantly larger dent.
Make the most of loan features
Loans with offset accounts enable borrowers to link a savings account with their home loan account and ‘offset’ or use that amount to reduce the interest accumulated on their mortgage. For example, if a borrower has $5,000 in an offset account, then on a $300,000 loan (at 7% interest pa) the term would be reduced by around 1 year and the borrower would save over $33,000. It’s worth enquiring about but be aware there could be an ongoing cost for keeping the account, such as a monthly fee.
Don’t settle for second best
If you went for a premium loan you may be repaying at a higher interest rate for facilities and features you don’t need or use. Consider refinancing to a more basic product offering a lower interest rate – your repayments will be lower, and therefore you’ll be able to afford to pay your loan off quicker. When refinancing to a new loan and/or lender, be aware you may incur exit fees.
Give your loan a check up
If you already have a home loan, look at doing a home loan health check regularly because the mortgage market changes all the time. You might be able to get a better package now.
Keep your eye open for bargains
You might also investigate your eligibility for a ‘professional package’ home loan, where you can receive a reduced interest rate, no application or other fees, gold credit cards, and home insurance and other product discounts and benefits.
