Finding the ideal home loan and the best way to pay it off can seem insurmountable alone. But with the help of an experienced broker, it’s much easier finding terms that will suit you. Read on for our guide on why and how to repay your home loan quickly.
The most common home loans It’s easy to see why it can be intimidating picking the home loan that suits your situation when there’s so much choice! To help, here’s a rundown of the most common home loans:
Principal and interest loans These are often standard, with borrowers making regular payments against the amount loaned, with interest charges, over a 25-30-year period.
Interest only loans These require payments to cover the interest of the loan only. The actual amount you borrow will only reduce with extra payments.
Within these loan products, there can be a variety of different interest rates, including:
• Variable interest – the rate can go up or down in line with cash value or lender terms.
• Fixed interest – interest will remain unchanged over a fixed time (usually 2-5 years).
• Split loan – this is a combination where part of your rate is variable, and part is fixed.
Why repay it quickly?
Once you have secured your home loan and purchased your dream property, it can be tempting to rest on your laurels and worry about repaying your debt later. The Australian Investments and Securities Commission shows this is a common mistake – repaying your loan as quickly as possible will often save you money in the long run.
The larger your loan, the more interest you’ll pay on the principal debt, and if you ignore or fail to keep up with your payment schedule, you’ll start to struggle.
How to repay your home loan quickly
• Find a cheaper interest rate – shop around to find an interest rate on a home loan that seems within your means to pay off as soon as possible.
• Make larger or more regular repayments – this reduces the length of your debt. Be sure to check if any extra payments incur a transaction free.
• Plan for speed – the key to good financial health is planning. If you don’t think you can afford the repayments, you should speak to a financial expert who can offer advice on the next steps.
For more information on loan repayments or home loans, speak to our experienced team of mortgage brokers today.
NEGATIVE GEARING EXPLAINED JARGON FREE!
Negative gearing – it may seem like investor mumbo jumbo, but it’s really quiet a simple concept to get your head around. More than that, it’s an important option in an investor’s toolkit when looking for a property to invest in. Gear yourself up for a lesson in the basics of this investment system!
What is negative gearing? In the investment world, ‘gearing’ is just another way of saying borrowing money to buy an asset – in the case of property investment, taking out a loan from a financial institution. Negative gearing is the case in which the interest you repay on your loan is higher than the income you generate from the property.
Here’s an example:
• You purchase an apartment for $500,000.
• The bank loans you $400,000 with a 5 per cent interest rate.
• This means you have to repay $20,000 per annum.
• If you rent this apartment for $400 per week, this gives you a yearly income of $19,200.
• Which means you’ll be $800 short every year – and this doesn’t factor in other expenses such as maintenance and repair costs, insurance and council rates.
What are the positives of negative gearing? If this grinds your gears, don’t worry! There are several positives for investors:
More choice, more properties With negative gearing, it becomes easier for anyone to invest in property. The market for neutral or positively geared properties is very small, so by implementing this system more people have a chance of owning property and seeing a long-term investment from capital growth.
The capital growth pay-off What’s this? Simply, it’s the growth in value of your property over time. Most properties get more valuable over time, so the profit you make from selling the property after a few years should offset the money you lost year-on-year with your negatively geared loan.
Reducing taxable income In order to help property investors, tax can be deducted from ongoing expenses, like interest on your loan and maintenance costs. These costs can be claimed against your annual income, meaning less will be taxed overall.
Want to know more? Negative gearing allows more people than ever before to invest in the property market – but any decision to purchase property and take up a mortgage should be done with the help of a professional. For more information about negative gearing or finding the ideal home loan, speak to our experienced team of mortgage brokers today.
We often get asked by our clients, how they can repay their home loans quicker.
The key is how effectively you manage your repayments. We have listed top 6 tips on saving interest on your home loan and repaying your loan quicker.
1. Change monthly to fortnightly repayments.
By repaying your home loan on fortnightly or a weekly basis you will be making the equivalent of an extra monthly repayment each year, this will help you repay your home loan sooner and also save you interest.
Example: A 30 Year $500k loan @ 5% interest rate can be repaid 4 Years and 9 months earlier saving you over $85k in interest just by paying every two weeks.
2. Extra Repayments
If you earn more and spend less why not put it towards your home loan? An extra $100 repayment per fortnight on your loan from the above example will reduce the loan term by 4 years and 16 fortnights saving $82k in interest over the term of the loan.
3. Cut back on some luxuries
Bring coffee and lunch to work rather than eating out. $15 a working day ($3 Coffee + $12 Lunch) saved and paid towards the loan will save you $113k in interest over the term of the loan in the above example. Make that saving twice if you are a couple.
4. Use unexpected money
Monetary gifts from friends and relatives, tax refunds or any unexpected payment like annual bonuses if channelled into your mortgage will always put you ahead in mortgage repayments. These extra lump sum repayments will be a lifeline in times of job loss, extended sickness, career break or birth of a child.
5. Maintain your current repayments when interest rates go down
Okay if you find making extra repayments difficult then maintaining your current repayments can also be beneficial in reducing your loan term. That is maintaining repayments when the interest rates go down. Not taking the option of reduced repayment when interest rates go down will actually benefit you in the long run while not affecting your budget.
From the above example of the 30 Year $500k loan at 5%, your minimum monthly principal & interest instalment would be $2,684.11
Now if the interest rate was to drop by 1% then your monthly repayment will reduce to $2,387.08 which is a saving of $106,931 over the loan term. But if you continue to pay $2,684.11 instead of the lower repayment, then you would save a massive $183,856 over the loan term.
6. Refinance your home loan
This refers to taking out a cheaper and better home loan to pay your initial loan. The new loan will mostly offer lower interest rate and can be tailored to suit your own circumstances. i.e change from interest only to principal and interest repayments, fixed rate to variable rate etc. Due to increased competition now, switching variable home loans is quite simple and usually doesn’t cost more than a few hundred dollars.
Some lenders even pay cash rebates upto $1500 after settlement of the new loan. Low-interest rates enable you to pay less in interest and more to cover the principal without changing the amount of money you pay monthly. This will help you clear your loan faster. Our helpful home loan advisors will help you find the best loan suited to your circumstances and show you how quickly you could repay your existing debt by switching.
- Fixed rate loans:There is a limit of extra repayments on fixed loans without paying additional fees, generally $10k annually. You may check with your bank about making additional repayments without paying a penalty and organise your repayments accordingly.
If your fixed loan is set up with a variable portion, then you can make unlimited additional repayments on that part of the loan.
However if your fixed term is coming to an end and you are not sure what other options are there in the market to repay your loan quicker, just call us.
- Investors: Investors usually like paying off their non-tax deductible debt such as owner occupied home loan, car loan or credit card and save any additional money from their income to re-invest. This strategy helps them reduce expense at the same time maximise tax benefit and save more for investing in their next income producing asset / venture.
If you do not have any other debt except the investment loan, then making additional repayments into your offset account may be beneficial. If you do not have an offset account with your investment loan and need specific advice on your loan, contact us.
- Interest only loans: If you are an owner occupier on an interest only loan, wanting to repay quicker, then you should consider changing to principal & interest loan.
To find out whether your loan is interest only, simply check your statement to see if your balance is reducing each month. Call us to find out best available options.
This is general advice about saving money on your home loan not specific financial advice. Please refer to your financial planner to discuss your specific financial goals. If you have a question about your home loan, please feel free to call us on 02 8321 8895 or enquire online.
One of the biggest questions for any first-time home buyer is “should I be holding off on purchasing a home to avoid paying Lender’s Mortgage Insurance?”. There is no definitive answer to this as it all depends on your personal circumstances. So, let’s take a look into what LMI involves & how it affects you…
What is Lender’s Mortgage Insurance (LMI)?
Lender’s Mortgage Insurance is an insurance policy that protects lenders from financial loss if the borrower defaults on their home loan repayments. On average, the cost of LMI is around $8-9k on a $500k property with a 10% deposit, but premiums vary depending upon individual borrower profiles. By paying LMI, first time buyers can get into the property market with a smaller deposit. Buyers can even add the cost of LMI to their loan, meaning they don’t have to fork up the money upfront.
In the past four years, property values in Sydney have risen at a rate of over 10% per year, according to Corelogic. Taking that into account would mean anyone who used a 10% deposit & paid the LMI, would have made it back, plus more, in the first 12 months of ownership.
Many first-time home buyers opt to keep saving to get their deposit up to 20%, only to watch home values rise beyond what they would have paid in LMI.
So, does that mean I should just take a loan with LMI?
Not always, there are pro’s & con’s to taking out LMI, which all depend on your personal circumstances.
The biggest benefit of taking a loan with LMI is that it allows you to get invested sooner. If you don’t borrow beyond your means & property values are continuing to rise, LMI is certainly worth consideration. A property worth $500,000 now would require $100,000 deposit at 20%, if you were to wait 2 years to save & values kept rising at 10% per year, the same property could be worth $600,000 & require $120,000 deposit at 20%. By taking a mortgage with LMI, a buyer would cover the cost & be making a profit within months of purchase.
However, some things to consider are the high costs, especially if you’re purchasing a large home & If property values don’t continue to rise like they currently are, your equity would build at a slower rate, which could make it harder to refinance your property in the future.
It’s also very important to understand that lender’s mortgage insurance does not protect borrowers in the event of a defaulted home loan. If a lender is forced to sell the home due to an unpaid loan, then the insurer generally has the right to pursue the borrower for any shortfall.
Most of the time it’s going to be more beneficial to have a 20% deposit ready to go when purchasing your fist home, however you need to weigh up the pros and cons of giving yourself more time to save, compared to getting into the property market earlier.
Buying your first home can be an exciting time, but ensuring you are taking the best loan for your new home can be difficult. If you’re looking to purchase a home & want to learn more about Lenders Mortgage Insurance & if it’s right for you, contact Euphoria Loans today for a free face to face consultation.
Buying your first home is probably going to be the most important decision you will make in your lifetime. You not only need to take into consideration the cost but also the location, size & your future. All of this requires a lot of hard work & knowledge, if you’re living in Sydney or Melbourne, buying your first home can seem even harder in 2017.
The first consideration is always going to be ‘can I afford it?’… It’s a question which seems straight forward, but if you’re not currently renting & still living at home, monthly repayments on a mortgage can be a big shock to some. Making a few strict lifestyle changes before committing to a home loan can ease the change, try putting aside what you’d be paying in repayments monthly to help you adjust to what is usually a huge part of your income going towards bills. You can easily calculate an estimate of what your repayments should be, by using a loan repayments calculator which you can find here.
Aside from mortgage repayments which can fluctuate over the borrowing period, you need to also consider other costs associated with owning your own home. If you’re borrowing more than 80% of the property price, you also need to pay for lenders mortgage insurance (LMI). Other insurances you may not be used to paying include property insurance for protection against fire, theft and weather damage.
For many first time buyers being able to pay LMI instead of saving a 20% deposit for their first home has it’s benefits. LMI gives you the potential to own your first home sooner. With some lenders you can borrow up to 95% of the property price. LMI is usually paid as a one-off lump sum at settlement but it can also be added into the loan. A dedicated mortgage broker at Euphoria Loans can help you decide which option is better for you.
From July 1st, first home buyers in NSW will no longer have to pay stamp duty on new or existing homes up to $650,000. There are also big discounts on stamp duty for homes up to the value of $850,000. That could be a saving of as much as $34,360. If you’re building or purchasing a new home, you could also be eligible for a $10,000 grant to help you get started.
There really has never been a better time in the past few years to buy your first home in Sydney. Get in contact with Euphoria Loans for a full breakdown of costs associated with buying your first property & the new government incentives you could take advantage of.
The most successful people in life are the ones who plan everything according to their needs and their monthly income. Buying a home is also such a decision which needs a lot of planning, because without planning it is almost impossible to arrange for the money required to buy a home.
Any person, who wishes to take a mortgage, has to plan how to repay the loan. This is because without a reliable source of income and planning, a borrower cannot afford to go for it. If you want to put a plan in place to pay off your mortgage quicker, it’s going to require that little bit more planning. There are plenty of online calculators available to calculate financial benefits you can get by repaying your home loan quicker.
There are many advantages of repaying your home loan off quicker. Here are some tips to get it done –
- The first method & most obvious method is to increase the monthly installments of your home loan. This will lower your burden in coming years and will also give you a financial saving. Your future installments will gradually decrease and this will lower your markup also.
- Making partial payments is another very good technique to repay your home loan quickly. Try to save each penny you can and pay the saved money at the year end to lessen your markup and being tension free.
- The formula of mortgages is so complex that not everyone can understand them. For the first few years, it seems you are paying the interest and the principal is still the same. Therefore, to repay it quickly, understand the reasoning and try to hit the principal and minimise it as soon as possible to avoid financial loss and satisfaction.
- Another way to repay your loan quickly is to take advantage of a relief package. Mortgage advisors at Euphoria Loans can suggest ways to repay your loan quickly and without troubles. Keep in touch with your lender and also with banks to be aware of any packages as soon as they announced.
- Involving the family in the whole process of repaying your mortgage also makes its repayment easier. Make everyone equally responsible and ask them to sacrifice some of their luxuries for a more comfortable future.
- The next very good tip to repay your loan quickly is to pay all the fees and charges at the start and selecting the lender with minimum rates. If your current mortgage isn’t the best available to you, it’s worth refinancing your loan.
They have no trouble comparing prices for other big items, such as a car or a TV, but when it comes to a house, it’s a different matter entirely. If you are looking for a new house or your mortgage is up for renewal, you may be asking yourself if you should shop around for a mortgage rate. Being loyal to your lender doesn’t really give you too many perks because let’s face it the most they will probably do for you is try to cross sell you some other products that you don’t really need.
If this is the case then you should probably start looking at refinancing because your lender may be leaving you out of pocket. Consumers who consider interest rates offered by multiple lenders or brokers may see substantial differences in the rates so that’s why we believe that consumers should be shopping around. Consider switching or even shopping around won’t hurt and the benefits of switching could easily out weigh being complacent with your current home loan. If you time your refinancing correctly then you can be lucky enough to lower your monthly mortgage repayment by locking in a lower variable rate that could even drop in the future.
Conquer the fear of change and save some extra cash that is better in your pocket instead of the lenders, treat yourself to those new golf clubs, buy your partner to a new pair of shoes or take the family on that holiday that they deserve.
Hunting for a new home can be one of the most rewarding things that you can ever do but it can also be one of the most confusing things. The excitement of buying a new house can overshadow common sense and mistakes can be made, that’s why below I have compiled a small list for you about some things to take into consideration when buying a new property.
Make a comparison chart Go beyond the basics like the number of bedrooms and bathrooms and think to things like natural light, storage space and cost per square meter.
Bring furniture measurements if every room in the house presents problems with your current furniture situation, you could effectively be adding thousands of dollars to the price if you have to purchase new furniture — something that is probably better to know sooner rather than later.
Taking a moment to visualise how you would use the space Just because the current owner uses the spare bedroom as storage it doesn’t mean that you should do that as well, just imagine a new office or home gym in that room and try to visualise color schemes and patterns that you can potentially use and really immerse yourself into the home.
If you’re seeking a good advice, then call us directly on or contact us online.
One of the most exciting things in your life is buying your very first property but it pays to have money put aside for the purchase costs or fees that no one really talks about which usually goes beyond your initial deposit.
Usually this is the most expensive cost that comes with the purchasing of a property and is paid prior to settlement. In layman’s terms stamp duty is the tax paid to the government so they can register your mortgage but it varies from state to territory.
Pest and building inspection
If you plan on moving in then a pest and building inspection is probably the best thing for you as it can save you loads of money down the track just incase termites are there or there are any major structural issues.
Real estate agents fee’s
If you’re selling through an agent then there is an agents commission to pay
Conveyancing You will need a legal professional to transfer ownership of the property you are buying or selling, conveyancing fees can cost around upward of $1000
Searches Your legal rep will need to do a property and title search to ensure that the seller is legally entitled to sell the property
There are a few kinds of insurance that you may need to think about when buying a property
Lenders mortgage insurance if you borrow more than 80% of the purchase price of the property you will need to pay lenders mortgage insurance which protects the lender if you were to default on your loan
Building insurance ensures that if something were to happen to your property that you will be able to move out and into something until your place is fixed
Contents insurance just in case something goes wrong all of your contents can be replaced
Mortgage protection insurance not essential but handy if you get ill or get injured and you can’t make your mortgage repayments
If you want to know what’s your property purchase costs simply ask one of our qualified team member. Call us directly on or contact us online.