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Discover Secret Techniques You Can Use To Cut The Term Of Your Mortgage Repayments By Ten Years, Legally Cheat Your Bank By Putting Thousands Of Dollars Saved In Interest Repayments Back Into Your Pocket, So You Can Live The Life Of Dreams And Be The Envy Of All Your Friends!

Scare The Heck Out of Your Banker

Did you know that over the course of your home loan that you are likely to pay almost three times the price of your home in mortgage interest payments only? That's right, call it the miracle of compound interest in reverse: most of the money you will be shelling out each month will be to cover mortgage interest only. Now, I can imagine you are wondering if there is a way to reduce your mortgage interest costs. Yes, there is. Let's examine how you can save tens of thousands of dollars on mortgage interest payment and pay off your mortgage loan sooner. 30 year mortgages are common with 40 year mortgages picking up steam. Today, 50 year mortgages are possible in some areas such as California. This means that you will be paying off a mortgage for a significant part of your life.

I don't know about you, but the prospect of never owning the property you live in doesn't sound that appealing, never mind shelling a major amount of mortgage interest payments over the life of the loan.

True, many people only stay in their homes for a short period of time before moving. On the other hand, at some point you are likely to find a home that you plan on staying in for as long as possible, maybe until the angel of death pays you a visit.

If you have heirs, then leaving an active mortgage in place means they will have to sell your home and divvy up the remaining monies amongst them. They'll get over it, but maybe you would prefer to leave a piece of property that you own outright instead of one that has a lien on it.

Here are some methods you can use that will save tens of thousands of dollars in mortgage interest payments. Guess what? You can turn that 30 year mortgage into one that is paid off in less than 23 years too. All because you took a dynamic approach to reducing your mortgage interest burden.

Choose Your Home Loan Wisely

Home mortgages have come a long way. They are no longer just about signing up for 25 years and making regular payments. Not even just about trying to pay off the loan as quickly as possible.

For some people, flexibility and peace of mind are just as important. There are a range of mortgage options that offer such benefits. These extras cost money, and the key feature for most people is still the interest rate.

Finding the right mortgage may take some time, but it can save a lot of money and stress. You need to carefully select what type of loan will suit you best.

Introductory loans

These are sometimes called honeymoon loans to attract borrowers. Many lenders offer loans with a low rate for a period such as the first year. After this time the loan reverts to the current standard variable rate. During the honeymoon period interest rates usually are fixed.

Such loans usually have exit penalties if you decide to cancel the loan, for example if you want to refinance to a basic loan with a cheaper interest rate within the first three to five years.

Standard variable-rate loans

A variable loan is one where you borrow the money for a set period of time, during which you make regular repayments. The interest rate, and your repayments, can vary during this time.

Standard variable-rate loans are generally the most flexible — offering the opportunity to redraw any extra money you’ve paid in, for example, and the option to switch to a fixed rate — for three years, say. They also generally have few penalties if you want to pay off the loan early.

Ask your mortgage provider for a discount on the variable interest rate. Usually you can expect up to a 0.7% discount if you borrow a large amount such as at least $250,000 or even more if you borrow $500,000 plus.

Basic Variable-Rate Loans

Basic 'no frills' loans are offered by a number of lenders. They offer a lower interest rate than standard variable-rate loans, but have fewer features.

Many basic loans are quite restricted and can have significant disadvantages — they may not even allow extra mortgage repayments above the minimum repayments.

There are now some basic loans available with good features such as a redraw facility.

Fixed rate Loans

The interest rate is fixed for a period, usually between one and five years, after which a new fixed rate can be agreed, or the loan can revert to the lender’s standard variable rate.

A fixed-rate loan can be a good choice if interest rates go up, but very expensive if they go down. Fixed rate loans may also penalise extra repayments.

If interest rates are expected to rise, the fixed rate is likely to be above the variable rate. If the rate is expected to fall, it could be lower. Make sure you understand break costs and other conditions before you sign. Look out for fixed loans that allow you to make extra repayments without penalties (for example $10,000 per year).

Split or Combination Loans

Here a part of your mortgage is treated as a fixed-rate loan. You may even have several fixed rates and one variable rate. For example with a $250,000 home loan you could have $100,000 on a variable rate, $50,000 on a two-year fixed rate and $100,000 on a five-year fixed rate.

If you’re worried that interest rates will rise, splitting your loan between fixed and variable rates can offer an element of security and flexibility.

Transactional mortgage (all-in-one loan)

This is the most flexible type of home loan. In essence it's a home loan from which you can pay money off and withdraw money very flexibly — because the mortgage is run like a bank account. Normally all your deposits like your salary go directly into your mortgage account and you have access to any amount above your repayments via EFTPOS, ATM or a chequebook.

While this loan gives you flexibility. However, it may require considerable self-restraint and determination to stick to a schedule of payments and reduce your loan when you have such easy access to your money.

Online loans

Online loans with competitive interest rates and flexible features are now available from several lenders. These have low interest rates, and include many of the features you’d expect from a standard variable home loan, such as redraw facilities and the option to split your home loan between variable and fixed rates.

These loans aren’t available through brokers or branches, only online or by phone.

Low Doc Home Loan

Low doc loans don’t require the same type of documentation required for a standard home loan. For example, if you’re self-employed you may not be able to fullfill the requirements for a standard home loan but may qualify for a low-doc loan. The downside is that interest rates are usually between 1% and 3% higher and lenders may not let you borrow more than 80% of the value of your home.

How much can I borrow?

Lenders generally assess your present financial commitments and income to ensure you're capable of repaying the loan. However, don’t just rely on this, make your own assessment of whether you can afford the repayments.

It’s a good idea to give yourself a buffer, a good idea is to assess if you can still comfortably meet your repayment in case interest rates go up by 2%.

Secrets To Saving On Repayments

Make bigger repayments

Increasing how much you pay, particularly in the early years, can have massive long-term benefits. Many bank and lender websites have calculators that approximate the effects of changing your repayments. Plug in your loan and payment details to see what difference a change could make, or ask your lender to crunch the numbers for you.

Turn professional

Depending on the amount you’ve borrowed (or sometimes your salary or line of work), you may be eligible for a low-rate ‘professional package’. They can include fee-free transaction or credit card accounts, discount insurance, financial advice and other ‘relationship’ benefits. Interest can be around 0.7% lower than standard rates.

Make fortnightly payments

This is really just a way to make yourself pay more to your lender each year, thereby cutting interest and years off your loan. By paying every two weeks you’ll make the equivalent of an extra month’s repayment each year.

Fees can be around $300 per year so ask your lender to show you how long it’ll take for interest savings to cover the annual fee. Will you end up paying more for the add-on services than if you’d shopped around for them separately?

Ditch the bells and whistles

Interest rates on basic mortgages are often lower than rates on standard (premium) and equity (line of credit) loans. Do your research to check the latest rates. If you need the additional features that premium mortgages provide, great, but if all you need is a ‘no frills’ loan, why pay extra?

Use Your Savings To Make A Lump Sum Payment

As long as your lender doesn’t penalise you for making extra payments, your mortgage can be a pretty good ‘investment’.

  • Extra repayments will reduce the principal amount on which interest is calculated (so you’ll pay less interest overall) and clear the loan quicker.
  • This effectively gives you a return on the ‘invested’ lump sum equal to your mortgage rate tax-free.

For example, if your marginal tax rate is 31.5%, you’d need to find an investment returning around 12% before tax to give the same benefit as a mortgage lump sum payment. If you pay income tax at 46.5% you will need to earn almost 16% to make a similar profit. There aren’t many low-risk investments returning 12–16%.

So, now that you know the secrets, you can buy your dream home and pay off the mortgage faster saving you thousands of dollars. All you have to do is make the right choices.