Life hacks: Here’s how you can own your home quicker

WANT to pay off your mortgage ASAP? Use these simple steps to help you take control of your finances and set your family up for a secure financial future.

OWNING your home faster is just eight steps away. Are you ready to take them?

Sophie Elsworth takes you through these seemingly simple steps that have the potential to transform your life, take control of your finances and set your family up for a secure financial future.

So what are you waiting for?

1. Check your statements

Check your most recent mortgage statement to find out the rate you are paying. This should be on your latest paper statement or you will find it on your online banking account. It is one of the most important pieces of information you need to know about your mortgage because it can mean the difference in tens of thousands of dollars in interest charges if you are paying an inflated interest rate. Otherwise ring your bank directly and ask them to help you with these details.

2. Compare the competition

If your current rate is over 4 per cent per annum go to a comparison site and start looking for a better deal. Interest rates are continuing to move outside of what the Reserve Bank of Australia board does so you need to regularly be checking your rate and other deals available. Sometimes your bank may raise your rate without your realising. For both owner occupiers and investors they are plenty of deals available with a “3” in front. Fixed and variable rates differ so depending on your circumstances one or the other or a “split” loan may suit you best.

3. Ring your bank and demand more

Ring your bank and ask for the retention team. Tell them you have found a better deal and you want to move your mortgage (see script). But make sure you are armed with the correct information first. This involves finding a lender that is cheaper and knowing the rate they are charging. Or it could even be the rate your own bank is offering new, not existing customers. But be prepared to be asked a few questions about the other offer, this will give you some good bargaining power.

4. Pay the same once you’ve negotiated down

Once you have negotiated a lower rate, keep repaying the same amount. If possible try and set your repayments higher the minimum amount, particularly while interest rates are so low. This means you will be able to cut into the principal amount much faster and reduce your interest costs. Use an online mortgage calculator or ask your lender how much difference can be made by paying extra each repayment. You will be surprised how quickly you can bring down the principal and make serious headway into your loan.

Wouldn’t it be nice to walk inside knowing you own your home? Follow these steps.

5. Pay down the principal

If you are only paying off the interest, switch to paying interest and principal.

Paying interest only on a home loan is a tactic used by property investors to access a property’s equity in a rising market, without being encumbered by paying down the principal. However, some owner-occupiers choose to pay interest only for a period of up to five years before the loan rolls into the normal principal and interest repayment plan.

This is dangerous because it suggests you have a mortgage you can’t afford. You might argue that it is temporary until you find your feet, but what happens if interest rates rise in that time or you suffer a different financial setback? You should only buy a property that you are comfortable paying off, not only at full repayments, but with a little extra on top so you have a rainy day buffer.

6. Reduce interest payments by having a linked offset account

Linking a savings or transaction account as an offset to your mortgage means any money in that account is offset against your loan. The lender charges you interest on the difference only, which helps pay the loan off faster.

For example, if you owe $300,000 on a mortgage and have accumulated $100,000 in a linked account, you are only paying interest on $200,000.

The more money in your offset account, the less interest you pay, so put as much of your salary in there as you can, plus any windfalls like tax returns, gifts or inheritances and take years and thousands of dollars off your home loan.

7. Make fortnightly rather than monthly repayments

Loan repayments are generally calculated on a monthly basis, but ask your lender if you can pay fortnightly instead. You then pay half your monthly repayment every fortnight. Because a month is longer than four weeks, you actually end up making the equivalent of one extra monthly repayment per year.

Assuming your monthly repayments were $3,000, after a year you would have paid $36,000. To pay fortnightly, you split your monthly payment in half, making a fortnightly payment of $1500.

There are 26 fortnights in a year, so you pay $39,000; an extra $3000. This amount comes directly off your loan principal, and reduces the amount on which future interest will be calculated, allowing you to pay the mortgage off sooner.

Take advantage of online liveability tools.

8. Use realestate.com.au’s online liveability tool

Realestate.com.au has a one-stop shop allowing potential home buyers to search, find, and complete conditional approval for a dream home purchase.

You simply visit the site, enter some personal data and the tool shows you which properties you can afford to pay off, in which neighbourhoods, while keeping your lifestyle intact.

Your financial capabilities are put under a stress test based on incoming and outgoing expenses and REA’s Liveability Index shows you if you can meet mortgage repayments on a scale from easy, to stretched, to struggling.

You can also get online conditional approval 24-hours a day, 7 days a week from NAB, to empower you to bid on properties.

WHAT YOU NEED TO SAY TO GET A TOP DEAL

You: “Hi, can I please speak to the retention team about my home loan rate.”

Bank: “Sure, I’ll transfer you now.”

You: “Hello, I’ve got a home loan deal with you and I’m looking for a better rate or I’m happy to switch to another lender.”

Bank: “Oh sorry to hear that, why exactly are you planning on switching?”

You: “I’ve seen sharper deals in the market at the moment where I can save money.

I’m paying [INSERT RATE HERE] on my loan, but lender [INSERT BANK NAME HERE] is offering a cheaper rate at just [INSERT RATE HERE]. What can you do for me?” (Make sure you know these figures because you need to be assertive and know what you are talking about.)

Bank: “We can review your loan and see if there is a better deal suitable for you.” (This is often where the bank will try and get you onto a fixed rate deal.)

You: “I want you to match the best deal on the market which I have mentioned otherwise I’m going to make the switch as it will save me a significant amount each month.”

Bank: “OK then, let us see what we can do.”

-If they don’t come to the party and drop your rate, vote with your feet and look to switch lenders.

Originally published as Life hacks: Here’s how you can own your home quicker