Money

Spending Shakedown – Mortgages and Loans

Published on February 7, 2018 8:48 pm, by

Mortgage and Loan repayments is a spending category you probably don’t want to minimise. This is because most people take a fairly simple approach to tracking their mortgage and loan repayments and categorise the entire payment as spending. An accountant would look at this differently, but for most people it works well.

So, the more you “spend” on Mortgages and Loans, the faster you’ll pay off your debts.

The aim of the game is to maximise the impact of the repayments you make. At a high level this means:

  • Make the largest repayments you can as often as you can (or use an offset account)
  • Make sure your loan is competitive – you need to minimise the interest rate and fees and charges you pay

Loan Repayment

They key with Loan Repayments is to ‘spend’ as much as you can and maximise the benefit of what you spend. This will help you pay off your debt faster and of course once it’s paid off you stop paying interest and fees. Here’s what we suggest you do:

1. Understand your loan contract

Read your loan contract and product documentation to understand what options you have and what they will cost. What you are looking for are things like options to make extra repayments, options to change the frequency of your repayments, fees for early repayment of your loan and fees for terminating your loan. You will need to know these things to make an informed decision about what to do

2. Make more repayments more often

If you can do it, increase the frequency of your repayments. This will have two effects. First it will probably mean you pay off a bit more each year. Second, by paying fortnightly you’ll reduce the amount you owe, ever so slightly, just a little bit sooner. But this means less interest and so each repayment you make will be be paying off more of what you borrowed and less interest. Amazingly, this can make a big difference over the term of a large loan.

3. Shop around and make sure your loan is competitive

Most importantly you need to regularly check to make sure your loan is competitive. It’s a well established fact that lenders will “rip off” existing, loyal customers by charging them significantly more than they charge new customers. The only way to avoid this is to shop around, negotiate and switch if you need to. Be sure to make an informed decision though – you need to consider all the costs of your current loan (there might be break fees, switching fees and discharge fees) and all the costs of a new loan (application fees and stamp duty). To help you analyse your switching options use this calculator on the ASIC MoneySmart web site.

The easiest option is usually convincing your current lender to reduce your interest rate to match their offers to new customers or to match competitors in the market. You may be able to use a comparison site to get details on rates on offer from competitors. Here are two that might be helpful – Mozo and Canstar

You might also find our guide to negotiating useful in preparing for the discussion with your lender.

 

Mortgages

A home or investment property mortgage will probably be one of the largest expenses you ever incur – so it’s important to stay on top of it. Again, the key is to ‘spend’ as much as you can and maximise the benefit of what you spend. This will help you pay off your mortgage faster and of course once it’s paid off you stop paying interest and fees. Here’s what we suggest you do:

1. Understand your mortgage contract

Read your mortgage contract and product documentation to understand what options you have and what they will cost. What you are looking for are things like options to make extra repayments, options to change the frequency of your repayments, fees for early repayment of your mortgage and fees for terminating your mortgage. You will need to know these things to make an informed decision about what to do

2. Make more repayments more often

If you can do it, increase the frequency of your repayments. This will have two effects. First it will probably mean you pay off a bit more each year. Second, by paying fortnightly you’ll reduce the amount you owe, ever so slightly, just a little bit sooner. But this means less interest and so each repayment you make will be be paying off more of what you borrowed and less interest. Amazingly, this can make a big difference over the 25 or 30 year term of a large mortgage.

3. Shop around and make sure your mortgage is competitive

Most importantly you need to regularly check to make sure your mortgage is competitive. It’s a well established fact that lenders will “rip off” existing, loyal customers by charging them significantly more than they charge new customers. The only way to avoid this is to shop around, negotiate and switch if you need to. Be sure to make an informed decision though – you need to consider all the costs of your current mortgage (there might be break fees, switching fees and discharge fees) and all the costs of a new mortgage (application fees and stamp duty). To help you analyse your switching options use this calculator on the ASIC MoneySmart web site.

The easiest option is usually convincing your current lender to reduce your interest rate to match their offers to new customers or to match competitors in the market. You may be able to use a comparison site to get details on rates on offer from competitors. Here are two that might be helpful – Mozo and Canstar

You might also find our guide to negotiating useful in preparing for the discussion with your lender.

 

Car Loan

Car loans can be expensive, especially compared to some other types of debt and because cars generally fall in value as you are paying off the loan (which is quite different to say a home loan where the value of your home is more likely to increase). So the key is to ‘spend’ as much as you can and maximise the benefit of what you spend. This will help you pay off your car loan faster and of course once it’s paid off you stop paying interest and fees. Here’s what we suggest you do:

1. Understand your loan contract

Read your loan contract and product documentation to understand what options you have and what they will cost. What you are looking for are things like options to make extra repayments, options to change the frequency of your repayments, fees for early repayment of your loan and fees for terminating your loan. You will need to know these things to make an informed decision about what to do

2. Make more repayments more often

If you can do it, increase the frequency of your repayments. This will have two effects. First it will probably mean you pay off a bit more each year. Second, by paying fortnightly you’ll reduce the amount you owe, ever so slightly, just a little bit sooner. But this means less interest and so each repayment you make will be be paying off more of what you borrowed and less interest. This can add up over the term of your loan.

3. Shop around and make sure your loan is competitive

Most importantly you need to regularly check to make sure your loan is competitive. It’s a well established fact that lenders will “rip off” existing, loyal customers by charging them significantly more than they charge new customers. The only way to avoid this is to shop around, negotiate and switch if you need to. Be sure to make an informed decision though – you need to consider all the costs of your current loan (there might be break fees, switching fees and discharge fees) and all the costs of a new loan (application fees and stamp duty).

The easiest option is usually convincing your current lender to reduce your interest rate to match their offers to new customers or to match competitors in the market. You may be able to use a comparison site to get details on rates on offer from competitors. Here are two that might be helpful – Mozo and Canstar

You might also find our guide to negotiating useful in preparing for the discussion with your lender.

 

Debt Repayment

The key with debt repayments is to ‘spend’ as much as you can and maximise the benefit of what you spend. This will help you pay off your personal loan faster and of course once it’s paid off you stop paying interest and fees. Here’s what we suggest you do:

1. Understand your loan contract

Read your loan contract and product documentation to understand what options you have and what they will cost. What you are looking for are things like options to make extra repayments, options to change the frequency of your repayments, fees for early repayment of your loan and fees for terminating your loan. You will need to know these things to make an informed decision about what to do

2. Make more repayments more often

If you can do it, increase the frequency of your repayments. This will have two effects. First it will probably mean you pay off a bit more each year. Second, by paying fortnightly you’ll reduce the amount you owe, ever so slightly, just a little bit sooner. But this means less interest and so each repayment you make will be be paying off more of what you borrowed and less interest. This can add up over the term of your loan.

3. Shop around and make sure your loan is competitive

Most importantly you need to regularly check to make sure your loan is competitive. It’s a well established fact that lenders will “rip off” existing, loyal customers by charging them significantly more than they charge new customers. The only way to avoid this is to shop around, negotiate and switch if you need to. Be sure to make an informed decision though – you need to consider all the costs of your current loan (there might be break fees, switching fees and discharge fees) and all the costs of a new loan (application fees and stamp duty).

The easiest option is usually convincing your current lender to reduce your interest rate to match their offers to new customers or to match competitors in the market. You may be able to use a comparison site to get details on rates on offer from competitors. Here are two that might be helpful – Mozo and Canstar

You might also find our guide to negotiating useful in preparing for the discussion with your lender.

 

Student Loan

There are broadly 2 types of student loans – loans from the government (known as HELP loans) and personal loans from financial institutions and other lenders.

Government provided HELP loans are repaid through the tax system at rates determined by your income. You can get more information on the repayment of HELP loans here. Borrowers don’t pay interest on HELP loans, but the loans are indexed each year in line with inflation. If you have a HELP loan you are probably best to stick with the mandated repayments through the tax system.

Student loans from financial institutions and other lenders are basically personal loans – sometimes secured and sometimes unsecured. If you have one of these loans you will pay interest and fees and you will need to make the contractual repayments.

Like any personal loan, a student loan is going to be relatively expensive. At the time of updating this guide (February 2020) student loan rates ranged between 8% and 13%.

If you have a student loan from a financial institution or other lender the key is to ‘spend’ as much as you can on repayments and maximise the benefit of what you spend. This will help you pay off your loan faster and of course once it’s paid off you stop paying interest and fees. Here’s what we suggest you do:

1. Understand your loan contract

Read your loan contract and product documentation to understand what options you have and what they will cost. What you are looking for are things like options to make extra repayments, options to change the frequency of your repayments, fees for early repayment of your loan and fees for terminating your loan. You will need to know these things to make an informed decision about what to do

2. Make more repayments more often

If you can do it, increase the frequency of your repayments. This will have two effects. First it will probably mean you pay off a bit more each year. Second, by paying fortnightly you’ll reduce the amount you owe, ever so slightly, just a little bit sooner. But this means less interest and so each repayment you make will be be paying off more of what you borrowed and less interest. This can add up over the term of your loan.

3. Shop around and make sure your loan is competitive

Most importantly you need to regularly check to make sure your loan is competitive. It’s a well established fact that lenders will “rip off” existing, loyal customers by charging them significantly more than they charge new customers. The only way to avoid this is to shop around, negotiate and switch if you need to. Be sure to make an informed decision though – you need to consider all the costs of your current loan (there might be break fees, switching fees and discharge fees) and all the costs of a new loan (application fees and stamp duty).

The easiest option is usually convincing your current lender to reduce your interest rate to match their offers to new customers or to match competitors in the market. You may be able to use a comparison site to get details on rates on offer from competitors. Here are two that might be helpful – Mozo and Canstar

You might also find our guide to negotiating useful in preparing for the discussion with your lender.

 

Personal Loan

Personal loans can be expensive, especially compared to some other types of debt. So the key is to ‘spend’ as much as you can and maximise the benefit of what you spend. This will help you pay off your personal loan faster and of course once it’s paid off you stop paying interest and fees. Here’s what we suggest you do:

1. Understand your loan contract

Read your loan contract and product documentation to understand what options you have and what they will cost. What you are looking for are things like options to make extra repayments, options to change the frequency of your repayments, fees for early repayment of your loan and fees for terminating your loan. You will need to know these things to make an informed decision about what to do

2.. Make more repayments more often

If you can do it, increase the frequency of your repayments. This will have two effects. First it will probably mean you pay off a bit more each year. Second, by paying fortnightly you’ll reduce the amount you owe, ever so slightly, just a little bit sooner. But this means less interest and so each repayment you make will be be paying off more of what you borrowed and less interest. This can add up over the term of your loan.

3. Shop around and make sure your loan is competitive

Most importantly you need to regularly check to make sure your loan is competitive. It’s a well established fact that lenders will “rip off” existing, loyal customers by charging them significantly more than they charge new customers. The only way to avoid this is to shop around, negotiate and switch if you need to. Be sure to make an informed decision though – you need to consider all the costs of your current loan (there might be break fees, switching fees and discharge fees) and all the costs of a new loan (application fees and stamp duty).

The easiest option is usually convincing your current lender to reduce your interest rate to match their offers to new customers or to match competitors in the market. You may be able to use a comparison site to get details on rates on offer from competitors. Here are two that might be helpful – Mozo and Canstar

You might also find our guide to negotiating useful in preparing for the discussion with your lender.

 

This summary has been prepared by MoneyBrilliant Pty Ltd (AFSL 492711, ACL 493068). The information in this summary is of a factual nature only. We are not suggesting or recommending that you take any particular course of action in relation to any financial product or service. It does not take into account your personal circumstances or objectives. If you need financial advice or taxation advice you should seek advice from a licensed financial adviser or tax agent. You may also be able to access additional information from the websites of the Australian Securities and Investment Commission (ASIC) and the relevant product providers.

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Peter is the CEO of MoneyBrilliant. He has over 20 years experience in banking, insurance and accounting. Peter has three sons, ranging in age from 16 to 3, is a sport and fitness fanatic and a volunteer firefighter. He is passionate about improving people's lives through making financial services more accessible.

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