Save Thousands off your Loan, and learn about the different types of home loans available.
Put your spare change into your house! Small dollars can add up in a big way! Firstly make sure that you can get a loan that you can easily, and penalty free, add money into at any time. This is important because the more your pour in at the start, the quicker you drop the principle and the more you save later on! Remember interest is paid cumulatively. For example, paying an extra $20 a week for the first five years can save you $4000-5000 off interest off your loan, at an interest rate of around 7.5%pa.
Use an Interest Free Credit Card in addition to a Line of Credit Loan: This tip is currently saving me up to $25 a month and growing. A warning though, you need to be disciplined to do it! I pay all my bills on a credit card and take advantage of the interest free period. After the 40 days is over, I then pay off the card using my home loan. Hence all my income for the month went into the home loan and reduced the principle for that month more than I would have otherwise done. When I pay off the card, the principle goes up, but I paid less interest over the whole month. As I save my $25 increments, it comes off the principle and thus increases over time. It well worth talking to a financial planner about this idea.
Get a loan with an internet banking facility: This allows you to keep a close eye on your finances at any time. It save you money by telling you when you have already spent to much for the month and need to cut back!
Shop around for the best deal: Just because you have always banked at bank X, doesn't mean you should get a home loan with them. The Big Banks have greedy shareholders rubbing their hands together at the profits! Quite often, smaller building society or credit unions can offer much better interest rates at no fees, because they have no share holders. All income earned goes to the running of the society. These member owned institutions are just as secure as they are forced to follow the same financial rules as the big guys. Don't be afraid to refinance, its not painful and can save you thousands!
So you Want to Buy Property? What type of Mortgage is Right For You?
Standard Variable Loans: This is by far the most popular type of home loan. It has the benefits of if the interest rates fall, your repayments come down. You can take the option to fix of split your loan and make additional repayments without incurring a penalty, giving it more flexibility than other loans. But like everything, what goes down must go up and if the interest rate rises, you will have to pay the extra costs.
Basic Variable Loans: Basic variable loans are like the "economy model" loan, with lower interest rates, but also fewer features. Many of these loans cannot be split or used with other loans and are not portable if you move house. Like your standard variable, the interest rates and repayment amount can vary over the term of the loan.
Introductory Loans: Don't be fooled by the low interest rates in big letters! While these intro loans offer a low interest for two years, the banks usually get their money back later on with an interest rate higher than the standard. Rates can be fixed, variable or capped. These loans are great if you're disciplined in really knocking off your principle in the first two years.
Fixed Loans: If you loved detailed budget plans and certainty in life, these are the loans for your. The interest rate is fixed for the term of the loan - usually between one and 10 years. This means that the monthly repayments will remain the same for the duration of the fixed period. Once the fixed period has expired you will either revert back to the standard variable or new fixed term interest rate. These loans often lack the flexibility of making additional repayments and reducing the term of the loan.
100% Offset and All-in-one Loans: These loans are excellent for the disciplined. Every penny you place in your savings account comes off the interest on your loan. It has the advantage of achieving a higher interest rate for your savings account, than you otherwise would get. These typically offer a cheque and cash card facility; however you may have to pay an additional fee or high interest rates for the privilege.
Line of Credit: A line of credit operates similarly to the offset loan; however you can dip into the equity in your home to pay the bills. It operates by having a transaction account built into the home loan. It allows you to use the money when you need it and pay it back when you can. It also allows you to take advantage of the no interest period on a separate credit card. When your credit card bill is due, you simply pay off the card using the line of credit. That way all the purchases you made in the month you get interest free. This can have a big cumulative impact on your loan. You must be very careful, however, not to overspend on your credit card however, otherwise you may not be able to pay off your home!
Home Equity Loans: These loans allow you to use the equity in your existing property for another purpose, such as renovation or investing in shares. The interest on these loans are sometimes tax deductible and at a lower interest rate than on than an equivalent personal loan. It does have the disadvantage of reducing the equity in your home.
Non-Conforming Loans: If you have had finance refused in the past, this is the loan for you. These loans, often called "Low Doc", are for the self employed, contract and seasonal workers and senior citizens. They provide the opportunity for a loan for those who other wise would not have the opportunity. They have the disadvantage of often having a higher interest rate, fees and being less flexible than traditional loans.
