the mortgage rule book to get ahead
1. Don’t Be Emotional
Many homebuyers fall into the trap of buying based on their emotions and it’s the number one way to ensure you pay more for the property than you need to.
Do your research on price, look at what comparable properties are selling for, and make the effort to inform yourself to prevent overpaying. If you overpay at the beginning, the cost of paying off that extra debt will be significant in the long term.
2. Budget Before You Buy
One of the keys to managing your mortgage effectively is to draw up a budget when you’re working out how much you can borrow, listing your total monthly income and your anticipated monthly expenses.
Make sure that your budget factors in all of the costs associated with owning a home, such as council rates, insurance, strata fees and maintenance costs, in addition to your regular mortgage repayments.
Also include a set amount each month for unexpected or infrequent expenses, such as doctor and dentist visits, car repairs, Christmas presents and school fees.
3. Ditch The Credit Cards
Credit cards offer an easy source of credit and the opportunity to conveniently deal with those emergency expenses that you may not have budgeted for. The only problem is small credit purchases here and there can add up into one major debt, and before you know it, you have a $5,000 balance on your hands – and you’re paying 17% interest on those late-night taxis and a couple of pairs of shoes.
Limit yourself to one credit card if possible, and shop around to get a low-rate card. Keep your maximum limit low and request the bank to stop automatic limit increases.
4. Boost Your Cash Flow With Interest Only
If you’re struggling to make ends meet, you can free up a considerable amount of cash by switching to interest only payments. This should only be considered as a short-term solution.
By paying interest only, you’re not making headway with your mortgage repayments. So as soon as your financial situation improves, you should get back to paying principal and interest to get rid of your mortgage sooner.
5. Compare Apples With Apples
When selecting a loan, it’s important to be aware of both interest rates and the fees involved, and compare each home loan product in its entirety.
You need to be aware of all of the fees and charges involved – for example, a professional package might set you back $400 a year, but for that outlay you receive fee-free transactional accounts, an offset facility and redraw.
However, these features might be meaningless to you if you have an existing bank account with fees of a few dollars a month, and limited savings to offset your debt. In this case, you’d be better off going for a basic variable loan product with minimal trimmings and low fees.
Your best bet is to decide, at the very beginning, which features are most important to you, and seek out the loans with these qualities to compare.
