foruM fINANce There are always steps borrowers can take to by theslasher


									foruM fINANce

                                                      There are always steps borrowers can take to pay
                                                        their loan off faster – Robert Amos of finance
                                                      company Armadale House - provides a few ideas
                                                                 that will help along the way.

     By      RoBeRt           Amos

      Mortgage crisis – top borrower
           tips to save money
       isted below are ten tips, most of
       which may be painlessly implemented.
       Readers may be surprised to learn
how effective many of these simple ideas
are in reducing the debt burden. First cab
off the rank is the advice to “skip the hon-

skip the honeymoon
There are two problems with honeymoons.
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.

Make repayments at a higher rate
A good way to get ahead of mortgage com-
mitments 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
percentage points to your repayment amount.
So if you have a loan at about 7% and pay
it off at 10%, you won’t even notice if rates    loan, but most of them boil down to              may not become due for a month after
go up. Best of all, you’ll be paying off your    one thing: Pay your loan off as fast as          settlement.
loan quicker and saving yourself a packet.       you can. For example, if take out a loan             If you can manage it (and your lender
Every dollar you put into your mortgage above    of $300,000 at 7.07% for 25 years, your          will let you), pay the first instalment on the
your repayment amount attacks the capital,       monthly repayment will be about be about         settlement date. If you do this, you will be
which means down the track you’ll be paying      $2,134. This equates to a total repayment        one step ahead of the lender for the term
interest on a smaller amount. Extra lump sums    of $640,126 over the term of your loan.          of your loan. Every little bit counts.
or regular additional repayments will help you   If you pay the loan out over 10 years rather
cut many years off the term of your loan.        than 25, your monthly payment will be $3,494     Make more frequent payments
                                                 a month (ouch!). But the total amount you will   One of the simplest and best strategies for
Pay it off quickly                               repay over the term of the loan will be only     reducing the term and cost of your loan (and
Time is money. There are all sorts of            $419,290 - saving you a whopping $220,836!       thus your exposure should interest rates rise)
strategies for paying less interest on your      With most new loans, the first instalment        is to make your repayment on a fortnightly

68   AustrAliAn    manufacturing        technology november 2007
rather than monthly basis. How can this make       As always, any extra repayments or lump             loan. For example you may have a mort-
a difference I hear you ask? It works like this:   sums will benefit you in the long run.              gage of $300,000 at 7.07% and an offset
Split your monthly payment in two and pay                                                              account with $50,000 in it earning 3% .
every fortnight. You’ll hardly feel the differ-    split your loan                                     This means that $250,000 of your loan is ac-
ence in terms of your disposable income,           Many borrowers worry about interest rates           cruing interest at 7.07% but the rest is accruing
but it could make thousands of dollars and         and whether they will go up but don’t want          interest at just over 4% (7.07% on your loan
years difference over the term of your             to be tied down by a fixed loan. A good             less the 3% the $50,000 in your offset account
loan. The reason for this is that there are        compromise is a split loan, or combination          is earning). Imagine how much you can save!
26 fortnights in a year, but only 12 months.       loan as they are often known, which allows          Of course, the best sort of offset account pays
Paying fortnightly means that you will be ef-      you to take part of your loan as fixed and          the same rate as your loan (100% offset).
fectively making 13 monthly payments every         part as variable. Essentially this allows you
year. And this can make a big difference.          to hedge your bets as to whether interest           Pay all your mortgage fees and charges
Using our example from above, by paying            rates are going to rise and by how much.            up front
monthly, you will need to repay $640,126           If interest rates rise you will have the security   Some lenders allow you to add to the
over the term of your loan. By paying fort-        of knowing part of your loan is safely fixed        amount you borrow instead of coming up
nightly, you will save $48,534 in interest and     and won’t move. However, if interest rates          with cash for your upfront costs. While
4.5 years off the loan. Zero pain to you,          don’t go up (or if they rise only slightly or       this can seem a blessing try to avoid do-
major benefit to your pocket.                      slowly) then you can use the flexibility of         ing this. Consider the following example:
                                                   the variable portion of your loan and pay           Borrower A borrows $300,000 over 25
get a package                                      that part off more quickly.                         years at 7.07% . Her upfront costs are
Speak to your lender about the financial                                                               $1,000 but she has enough cash to make
packages they have on offer. Common                forgo those minor luxuries                          sure she can cover these. Her total re-
inclusions are discounted home insurance,          This is the bit you don’t want to read. Once        payment over 25 years will be $640,126.
fee-free credit cards, a free consultation         you have a mortgage, your life is likely to be      Borrower B takes out the same loan
with a financial adviser or even a fee-free        luxury-free (or at least pretty close to it).       but doesn’t have enough cash to cov-
transaction account. While these things may            Think of all the weight you will lose by        er the upfront costs. So he borrows
seem small beer compared to what you are           giving up your favourite indulgent snack.           $301,000, at the same rate. His total re-
paying on your home loan, every little bit         For the sake of your health you should quit         payment over 25 years will be $642,215.
counts and so you can use the little savings       smoking and drink less anyway. Take your            Two thousand odd-dollars might not sound
on other financial services to turn them into      lunch from home and save on bad fast food.          like a huge amount but what could you buy
big savings on your home loan.                     Trust us, your body will thank you for it.          with it if it stayed in your pocket?
                                                   If you’re still not convinced consider the
consolidate your debts                             following example. A typical day may include        For these and many other money saving
One of the best ways of ensuring you               a pack of smokes ($10), a coffee and donut          ideas, please contact your AMTIL allocated
continue to pay off your loan quickly is to        ($5), lunch ($12) and a couple of beers after       Armadale House representative Robert Amos
protect yourself against interest rate rises.      work ($8). That’s $35 a day or $175 a week          on 0413040199 or 0395000500 or email
If your home loan rate starts to rise, you         or $750 a month or $9,100 a year.         
can be absolutely positive about one thing             Assuming a mortgage of $300,000 at
- your personal loan rate will rise and so         7.07% over 25 years, by making $750 in              DISCLAIMER
                                                                                                       This document was prepared by Armadale House Pty
will your credit card rate and any hire            extra repayments each month, you’d save             Ltd ABN 28 095 723 283 without taking into account
purchase rate you may happen to have.              more than $175,000 in interest and be               any particular person’s objectives, financial situation or
This is not a good thing as the interest rates     mortgage free 11 and a half years sooner.           needs. It is not guaranteed as accurate or complete and
                                                                                                       should not be relied upon as such. Armadale House Pty
on your credit cards and personal loans are        No one is saying you should live a convict          Ltd does not accept any responsibility for the opinions,
much higher than the interest rate on your         existence but just cutting down a little on         comments and analysis contained in this document, all
home loan.                                         your expenses will see you reap huge finan-         of which are intended to be of a general nature. Ac-
                                                                                                       cordingly, reliance should not be placed by anyone on
    Many lenders will allow you to consolidate     cial benefits.                                      this document as the basis for making any investment,
- re-finance - all of your debt under the um-                                                          financial or other decision. Investors should, before acting
brella of your home loan. This means that in-      run an offset account                               on this information, consider the appropriateness of this
                                                                                                       information having regard to their personal objectives,
stead of paying 15 to 20% on your credit card      Instead of earning interest, any money you          financial situation or needs. We recommend investors
or personal loan, you can transfer these debts     have in your offset account works to offset         obtain financial advice specific to their situation before
  HiTech Strip Advert 10/10/07 2:54
to your home loan and pay it off at 7.07%.         PM Page
                                                   the interest 3you are paying on your home           making any financial investment or insurance decision.

                                                                                        P.O Box 3730 Loganholme Queensland 4129
                                                                                        Ph: 0413 700 441 web:

                                                                           AustrAliAn      manufacturing         technology november 2007                      69

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