Tips for repaying your mortgage sooner

Make extra repayments
The most common mortgages for home buyers require you to pay principal and interest. On a typical 25 year mortgage, anything extra you pay in the first five – eight years (when most of your repayments are primarily paying off the interest) is especially good at cutting your interest bill and shortening the life of your loan. Make extra payments as early as you can because these loans are interest-heavy up front and the faster you repay the better.

Consider making repayments on a weekly or fortnightly basis to reduce interest and the term of a loan.

Mortgage offset account

A mortgage offset account can save interest on your loan. Your mortgage is linked to a savings account into which your salary and other cash can be deposited and from which you withdraw to pay bills, credit cards etc when these debts become due.

For the period of time your money sits in this account, it is ‘offset’ against your loan and so reduces your interest bill.

Make an annual lump sum payment
Use your tax refund or a windfall such as an inheritance or work bonus, and apply it directly to your principal. Check your mortgage documents to find out how often you can prepay and in what amount.

Prepay a little every month
Get a copy of your loan amortisation schedule which will show the breakdown of interest and principal. If you’re making a payment for November, for example, look at the next line down on the principal reduction line and you will see that the principal reduction for the next month, December, is say $24. Making that $24 payment early, means that your “true” mortgage balance is one payment less after the principal is prepaid. So in essence, you’d be making an extra payment each year.

Redraw facility
A redraw facility allows you to make extra payments and then withdraw them if you need them. You can only redraw the additional payments you make, and sometimes this type of loan may attract higher costs for this extra benefit.

A redraw facility means you can put all your ‘rainy day’ money in your mortgage, knowing you can get it out again if you have to. Or you can use it to save money for a specific purpose, such as a car. Competitively-priced loans with redraw facilities are increasingly common, but you may still end up paying more.
Redraw facilities often charge a fee for each withdrawal, set a minimum amount for each redraw and may limit the number of redraws per year. Consider how often you are likely to ‘redraw’ your money before deciding whether this feature suits you.

Using the redraw facility may impact on the tax deductibility of your loan. Please discuss this option with us, your mortgage specialist, and your accountant.

If interest rates drop
If you have a variable home loan and the interest rate drops, continue to pay the loan at the higher rate.

Stay informed
Once you get a mortgage, aside from making the payments, it’s easy to forget about it altogether. But staying up-to-date on interest rates and new products could save you money. You may want us to shop for another product that better suits your needs.

We recommend that you review your mortgage requirements with us on an annual basis.

Make extra payments as early as you can because these loans are interest-heavy up front and the faster you repay the better.

As our website contains general advice you might require further consultation to help secure a financial future that suits your unique situation. Please contact our office today to make an appointment time convenient to you. Phone: (03) 9633 7180

Getting Started: Choosing the Right Loan

There are various types of home loans, all offering different rates and features. Always check the terms of your loan.

Honeymoon loans
A loan with lower repayments for the first six to twelve months. After the ‘honeymoon’ the loan becomes a standard variable loan and the repayments increase. Make sure that you can meet the higher repayments for the remainder of the loan. You could also be faced with a fee at the end of the honeymoon period to switch to another loan type.

Basic or “no frills” loans
A variable rate loan with a relatively low interest rate. The low rates for these loans could mean that you can repay the loan faster because there are no extra options available. Repayments will rise and fall with interest fluctuations. Remember to check that the loan conditions will suit your circumstances
– particularly the ability to make additional repayments and pay-out without a penalty.

Standard variable rate loans
These loans are the most common type available. The variable rate loan offers more features and flexibility than the basic or “no frills” loan, so the rate is usually slightly higher. The extra options (for example a redraw facility, the option to split between fixed and variable, extra repayments and portability) should be taken into account when choosing your type of variable loan. Repayments will vary as interest rates fluctuate.

Fixed rate loans
These loans are set at a fixed interest rate for a specified period - usually one to five years. The advantage of allowing you to organise your finances and repayments without the risk of rising interest rates is offset by the disadvantage of not benefiting from a drop in rates.

At the end of the term all fixed loans automatically revert to the applicable variable rate. At this stage you have the option to lock in another fixed rate for a new term, switch to variable or go for a loan where you split with a percentage fixed and the remainder variable. However these loans may have limited features and lack the flexibility of 100% variable loans. There may be early exit fees and limited ability to make extra payments.

Bridging loans
A bridging loan may be necessary to cover the financial gap when buying one property before the existing one is sold. This finance is generally secured against your property as you are utilising the equity in your existing property. Usually, bridging loans are short term and more expensive than other types of loans.

Our role as your mortgage specialist is to provide you with comparison of various loan options from a panel of lenders, and assist you with choosing the right loan for your circumstances.

There are various types of home loans, all offering different rates and features. Always check the terms of your loan.

It’s more than the interest rate

Interest rates are relevant and they are an important factor to consider when deciding which loan is right for you. A higher interest rate can mean thousands of dollars over the life of your loan. So, getting a nice low rate is something you need to make certain you do.

However, purchasing a home is the biggest financial decision most of us will ever make. Make sure you consider all the factors before you jump in.

So, what else is there to look at? Well, there is the type of home loan you want. A Basic Home Loan doesn’t have many frills and is often a variable interest rate. There aren’t any complicated fees and there isn’t any option to pay off early or pay more than your required amount. These are great for people who don’t foresee any dramatic life changes coming soon.

Let’s add two more fictional characters to our repertoire: Cindy and Lee, the home buyers.
In this example, Cindy and Lee are buying their first home and expect to stay there for at least a few years. They don’t expect to get married or have kids in the near future. Their jobs are stable and they think they will be employed for the foreseeable future. A Basic Home Loan is right for Cindy and Lee. They are unlikely to have access to extra funds to pay down the principal faster or be able to effectively use an offset account to the degree that it will make a significant dent in the short term, so rather than pay extra fees and perhaps a higher interest rate, a basic loan may be more appropriate.

Honeymoon Loan

The next type of loan is a Honeymoon Loan – or introductory rate loans. These offer a very low fixed or variable interest rates for about 6 or 12 months, after which time, the standard rate applies. These are good for folks who want to do renovations and pay as little as possible on their mortgage during that time, or for people who want to make a large dent in their repayments while the interest rate is still low.
Cindy and Lee just bought a “fixer upper.” It was all they could afford after paying for their lavish wedding. However, they have some income left over every month to pay to do the house up.

The Honeymoon Loan would be good for them to fix up the house a bit, before the interest rate rises. However once the rate comes off the Honeymoon period, usually the interest rate is quite a bit higher and it is a shock to the budget and system when you are used to paying a smaller monthly payment.

Redraw Loan

Another popular type or feature is the Redraw Loan. This clever loan allows you to save for the future while paying down your principle. This loan allows you to put extra funds into the loan, thus paying off the principal. If you need the money in the future, you have the option to withdraw it.

Cindy and Lee are now looking to have children and would like to save for the period when Cindy is not working. They get a loan with a redraw feature. Every month, some extra money is placed into the loan. The principal is paid down with the extra money. However, if a “rainy day” ever hits, or she wants to take 6-12 months off work – they can withdraw that money. It’s a great safety net. If they never need the money then they have access to the extra principal that they have paid off the loan.

Equity Line of Credit

The Equity Line of Credit is also quite in fashion. This is similar
to a big overdraft at home loan rates. These loans are popular with people looking to gain access for investment or renovations, or perhaps people on commission only type roles, because they are interest only and all your income sits in the one account making it easier to pay down. They often require very good budgeting and control as the amount of principal you pay off your loan is solely determined by you.

Cindy and Lee already own a home but it’s old and in need of renovation. They get an Equity Line of Credit. They use their home as collateral and get $50,000 to renovate the bathroom and kitchen. It was easier for them to gain access and only pay interest on what they used rather than getting the whole $50,000 in a lump sum and paying interest on the full amount. Also, they are adding value back into their home by doing the necessary renovations. However, the money borrowed does not have to be used within the home. You can use the money for anything you like.

There are many more types of home loans, but these are the most common for the typical home buyer.
You can even split a loan into part fixed and part variable; well, your mortgage broker can. As you can see, from just these few types of loans, interest rate matters, but so do other factors. With the bewildering varieties of loans, and loan terms and conditions available it can be easy to lose your footing, especially if you are a first-time home buyer. A mortgage broker can sit down with you and guide you through the process, while ensuring you get the loan you need.

A broker has access to so many more loans; in fact, some loans are only available to brokers. With that in mind, your broker will show you a few loans that fit your needs, and you can choose the one you like the most. These sorts of options and this level of individual customer service can be found through the best brokers.

The best brokers are accredited by the MFAA or the FBAA. Remember, these bodies require members to have a high level of education and ethical standing. They also have guidelines in place for removing members who do not continue to meet the standards. So when you hire an accredited mortgage broker, you can rest assured that the member is in continued good standing.

Getting Started: Borrowing Essentials

Credit reference
The lender we choose together is going to do a credit check on you. They’ll be looking at any credit applications made by you and will be checking if you’ve defaulted on payments or have an infringement referenced either in your name or your company’s name if you are self employed. Make sure that you have a ‘clean slate’ by checking your credit report.

If something appears that you are unaware of, advise the agency immediately. You can order your personal credit file online. Enter your personal information, pay by credit card and your credit file will be forwarded to you as a PDF file. Bring a print out of the credit file to your appointment with us. Or call 1300 762 207 and order your credit file over the phone.

How much can I borrow? (Know your limits)

The amount you can borrow depends on what you are buying and how much money you have left when you account for all your fixed commitments from your net income.

As a general rule of thumb, you should be paying less than one third of your income on your mortgage repayments. Firstly, draw up a weekly budget using our budget planner. We can then help you to work out how much you can borrow and what type of loan will suit your budget and lifestyle.

What deposit will I need?
Most lenders require 10% deposit and a history of savings. If you are borrowing more than 80% of the purchase price you will most likely be required to pay mortgage insurance (which means an additional fee). The more you can put down as a deposit, the less you will have to borrow, the lower your repayments and the less you will have to pay over the lifetime of your loan. We will look at your personal circumstances and work with you to determine your deposit requirements.

Deposit bonds
A deposit bond is a guarantee to the vendor, by an insurance company, that they will receive their 10% deposit, even if the purchaser defaults on the contract of sale. You, the purchaser, are able to provide this guarantee to the vendor by paying a small premium to the insurance company.

All purchase funds are paid at settlement. In the ordinary course of events, settlement takes place, the purchase price is paid in full and the deposit bond simply lapses.

Mortgage Reduction – Five Important Things You Should Know

mortgage reduction

When was the last time that you reviewed your current loan structure, interest rate or looked at how long you had left on your current mortgage?

Are you looking at purchasing an investment property but don’t know how to structure the finance? Do you need to consolidate some of your current personal debt?

Our goal here at Direct Super Management is to listen to our clients, gain an understanding of what they want and need then set them up with a loan structure that suits their financial goals. With the right loan structure in place our clients end up saving years off the life of their loan.

As an established mortgage broker in the industry we can save you time and money by comparing the lenders who may appear to be offering a good deal with those who are actually offering a good deal. Our focus is not just to get you the best loan but as a client of ours we will follow up regularly to determine how we can continue to help you improve your financial position and achieve the financial goals you desire.

Five Important Things You Should Know

  1. By refinancing and implementing the correct loan structure it can save you thousands off the life of your loan.
  2. You do not need a deposit to purchase an investment property if you have usable equity in your home. This does need to be structured correctly to protect your home though. Contact us to find out how.
  3. Experience is essential when looking at finance. Collectively in our office we have a combined 25 years in the industry. Across the team, you can have peace of mind knowing that we are looking after you.
  4. On average 1/3 of Victorians have never refinanced and are paying a significantly higher interest rate than needed. Is it time for a review for you?
  5. Refinancing does have costs involved but as part of our comparison we will determine whether or not it is beneficial for you to change.