Yesterday, a journalist writing for a financial magazine asked me this question:
What are the biggest ways Australians waste money when it comes to their finances?
Here’s my answer:
Bad decisions on a $400,000 home loan can easily cost you $100,000.
If you already have a mortgage, it’s not too late to fix old mistakes (or avoid making them with your next loan).
You should review your mortgage every 2 years anyway.
Why? Because less income needed to payout your mortgage means more money for other areas of your life. Your mortgage is probably the biggest financial commitment you will make in life. It is easy to get right and just as easy to get completely wrong.
Most people are surprised to find out that a low interest rate is not the only factor in reducing mortgage cost and paying out a loan faster.
You won’t see lenders advertising most of the tactics available to you, as it’s not in their best interests – the longer it takes to payout your loan, the more money they make. Lenders make money by lending you as much as possible, for as long as possible and with fees as high as they can get away with.
Failing to use a mortgage broker who will refund commission is one of the biggest mistakes people make when they choose a loan.
Commission refunds are probably the easiest way to put $10,000’s back into your pocket over the life of your loan – reducing your loan term by years, if you use the cash to make additional payments.
It’s the strategy that’s possibly the most effective and least utilised, as not many people know about it, or how to use it properly.
You can take $100,000 off the cost of your mortgage with surprisingly little increase in repayments, at least when compared to the savings.
You probably understand how compound interest affects costs exponentially. But, if you’re like most people, you may not realise how much the total interest cost increases over the loan term. And, you might not know how little the corresponding weekly repayments decrease as you lengthen the term beyond 15 years.
As you extend the loan term of a mortgage beyond about 15-20 years, your minimum repayments tend to level out and, at the same time, your interest costs start to skyrocket.