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1. Skip the honeymoon
Beware of lenders bearing gifts. Introductory or honeymoon rates have long been an important marketing tool for lenders. You are initially offered a cheap rate on your loan to get you in the door but once the honeymoon period is over, the lender will switch you to a higher variable rate of interest.There are two problems with this scenario. First, the variable rate is often higher than some of the lower basic loans available so you could end up paying more. Second, you need to clearly understand that a honeymoon rate applies only for the first year or two of the loan and is a minor consideration compared to the actual variable rate that will determine your repayments over the next 20 or so years.You may also be hit with fairly steep exit penalties if you want to refinance in the first two or three years to a cheaper loan. So make sure you fully understand what you are letting yourself in before setting off on a "honeymoon" with your lender.2. Make repayments at a higher rate
A good way to get ahead of your mortgage commitments is to pay it off as if you have a higher rate of interest. Get a loan at the lowest interest rate you can and add 2 or 3 points to your repayment amount. So if you have a loan at about 7 percent and pay it off at 10 per cent, you won't even notice if rates go up. Best of all, you'll be paying off your loan quicker and saving yourself a packet.3. Pay it off quickly
Time is money. There are all sorts of strategies for paying less interest on your loan, but most of them boil down to one thing: Pay your loan off as fast as you can. For example, if take out a loan of $300,000 at 7.07 per cent for 25 years, your repayment will be about be about $2,134. This equates to a total repayment of $640,126 over the term of your loan.If you pay the loan out over 10 years rather than 25, your monthly payment will be $3,494 a month (ouch!). But the total amount you will repay over the term of the loan will be only $419,290 - saving you a whopping $220,836!4. Make more frequent payments
The simple things in life are often the best. One of the simplest and best strategies for reducing the term and cost of your loan (and thus your exposure should interest rates rise) is to make your repayment on a fortnightly rather than monthly basis. How can this make a difference I hear you ask? It works like this:Split your monthly payment in two and pay every fortnight. You'll hardly feel the difference in terms of your disposable income, but it could make thousands of dollars and years difference over the term of your loan. The reason for this is that there are 26 fortnights in a year, but only 12 months. Paying fortnightly means that you will be effectively making 13 monthly payments every year. And this can make a big difference.Using our example from above, by paying monthly, you will need to repay $640,126 over the term of your loan. By paying fortnightly, you will save $48,534 in interest and 4.5 years off the loan. Zero pain to you, major benefit to your pocket.5. Hit the principal early
Over the first few years of your mortgage, it may seem that you are only paying interest and the principal isn't reducing at all. Unfortunately, you're probably right, as this is one of the unfortunate effects of compound interest. So you need to try everything you can to get some of the principal repaid early and you'll notice the difference. Every dollar you put into your mortgage above your repayment amount attacks the capital, which means down the track you'll be paying interest on a smaller amount. Extra lump sums or regular additional repayments will help you cut many years off the term of your loan. Go to page: 1 2 3 4 5
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