Our Top 5 Tips for Mastering Your Home Loan

Taking out a home loan to purchase a property is the biggest single investment that most people will make in their lifetimes. Property remains a favoured investment for many Australians, however mortgage or home loan stress remains high – especially where a combination of low income and high mortgage debt exist.

Often it’s a case of people’s home loans managing them – rather than them managing their loan. With this in mind, there are a number of steps borrowers can take to ease mortgage stress and significantly reduce the amount of time and money required to pay off a home loan.

1. Don’t overextend yourself!

The best place to start managing your home loan is in the beginning. Taking stock of your finances and the reality of your ability to meet your financial commitments can help avoid mortgage stress down the track.

Although the general sentiment is that banks have tightened up on loans in recent years, they are still prepared to lend quite high amounts to first home owners if there is a history of good employment and income. In some instances borrowers can be approved for loans that require up to 50 per cent of their income going in loan repayments. This is unsustainable, and can put a lot of mortgage stress on borrowers.

2. Take control of your contract!

After determining a realistic amount to borrow, the next step is to negotiate hard on the variables you have control over, such as interest rate discounts and related product features.

There is plenty of competition in the finance market and lenders should have to work hard to meet your requirements, so before committing to a lender is the best time to work out the best deal possible, which in the long term that will reduce both the interest you pay and the life of the loan.

3. Take advantage of the product features!

Once you’ve taken on a home loan on terms you’re happy with, it’s time to make full use of the loan features. Common ways of doing this include:

  • using redraw for any bonuses or large lump sum payments
  • using the loan offset account to reduce interest
  • making additional repayments more regularly, and
  • using your credit card to manage monthly expenditure.

You can also save on interest by placing all of your income in the mortgage offset account and then using a credit card to meet monthly spending, making sure that you clear or repay the credit card in full every month.

4. Seek advice from professionals!

Home Loans can be complex and lengthy loans, so getting advice from a professional can make a big difference in successfully managing your mortgage.

Professionals such as Financial Planners or Accountants can demonstrate to people how they can better manage their cash flows and reduce the amount of debt. They can also assist with budgeting,  including identifying discretionary spending as well as any surplus cash flow that’s not allocated to paying down the loan faster. This can not only reduce debt but also open up future wealth creating opportunities for the borrower.

5. Undertake an ongoing review process!

Managing your mortgage is not a set and forget task so taking an ongoing, proactive approach can play a big role in reducing the amount of interest payable.

Every three to four years, it’s wise to conduct a complete review of your personal debt situation, because there are different strategies that can be implemented all the time that can help reduce the amount you pay in the long term.