Purchasing a home is one of the biggest financial commitments most Australians will ever make. It is a commitment that can take decades to complete — from saving a deposit to settling monthly mortgage repayments.
Getting the keys to your own home is just a step towards realizing the Great Australian Dream. By then, you will start your years of paying for mortgage. However, far too many people make simple mistakes when it comes to their repayments. These mistakes, however simple they may be, might cost you substantially over the life of your loan.
Michael Yardney, director of Metropole Property Strategists, shares with Your Mortgage seven tips on how you can save big on your mortgage. Check his sure-fire ways below:
1. Use a budget
If you want to save money, you must spend less than you earn, right? Only when you can see your true money position can you be responsible for the desired outcome — so you need to devise a budget and stick to it!
Most people, including many high-income earners, don't understand that they can’t live beyond their means. Yet, they expect things to be different despite continually overspending.
For example, as a way to save money that could be more effectively used on your mortgage, you can take your shopping list with pre-planned meals and ingredients with you when doing your regular grocery run.
You can use Your Mortgage’s Income and Expenditure Worksheet to help you with your budget.
2. Keep your savings on your mortgage
It’s astounding how many families have one or more savings accounts while also paying a mortgage.Why pay tax on interest earned from these accounts (even if it’s only a small amount) when you could be offsetting the higher interest cost of your mortgage?
Technology has allowed us to have more control and flexibility over our bank accounts than ever before. So, instead of squirreling your savings in a separate account, why not save additional funds on your mortgage account where it can reduce your interest repayments while still being available for you to access when you want?
3. Put your income in your offset account
While your income is resting in an offset account, you are saving interest every single day because interest is charged monthly but calculated daily.
Even if you spend the majority of your income by month’s end (which you shouldn't if you budget!) you can still pay your mortgage off quicker by depositing your income directly into an offset account thereby lowering your interest payments.
4. Pay yourselft first
If, like many Australian families, you are struggling to meet your financial commitments every month or your expenses fluctuate from month to month, I suggest you pay yourself 10% of your income before you pay anything else.
It’s an old but wise maxim to pay yourself (in your savings or offset account) at least 10% of your income. Then live off the rest.
This creates forced savings as well as some interest cost savings, with this extra money accruing if you allow it too.
5. Review your costs periodically
Once you know where you are at and how much you are spending, it’s easy to compare and lower your expenses.
Contact your mobile phone, utilities and other bill carriers and negotiate a better deal.
When buying household items and gifts, research the different deal sites and online shopping sites, which can save you up to 70 per cent or more on the cost of identical or comparable items.
When reviewing your costs, eliminate any unnecessary costs.
Ask yourself, for instance, if you really need Foxtel? You see it’s not always about going without, often it’s about finding more efficient ways to achieve the same outcome.
6. Every winner needs a coach or mentor
There's never been a sporting star that didn't have a coach to create their goals, habits and mindset, and to hold them accountable to them. The same can be said of your finances and property dreams and goals. You should seek out a quality coach or mentor and have them on your team –this is possibly the best investment you can make.
Reach out to a home loan specialist by visiting Your Mortgage Broker website.
7. Review your financial position regularly
Let me be clear: those who are successful financially all have one thing in common. Quite simply they always know exactly where they are financially.
Conversely, those who are unsuccessful usually don’t have a clue where they are at financially at any given time. You need to review your financial position on a regular basis. There shouldn't be any financial surprises if you're completely aware of what income is coming in and what expenses are going out.
The bottom line...
While you’re likely to need a mortgage to buy your home or investment property, this doesn't have to be a millstone around your neck. Instead, recognise it as a financial product which they can use to their advantage.
If you borrow money against an appreciating asset, this is good debt, as long as you plan and budget accordingly.
This is an updated version of a guide first published on 27 April 2017.