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How to save money on your mortgage

By Niketa Loftus

Although those that are new to the Australian real estate market might think the price of a property is the one and only influencer of mortgage repayments and affordability, there is actually a lot more to it. As Dr Luci Ellis, head of the financial stability department for the Reserve Bank of Australia (RBA), recently pointed out, rising house prices don’t necessarily mean buying a home is less affordable.

While addressing the Australian Housing and Urban Research Institute panel roundtable in October, Dr Ellis said, “mortgage repayments are lower than the average of the past 10 or 15 years, so again thinking about what it means to have affordability and unaffordability – the affordability of a current mortgage is not unusually high at present.”

Although a lot of this comes down to the accommodative financial environment created by the RBA, by maintaining the all-time low interest rate of 2.5 per cent for an extended period, there are things you can do to make your mortgage more manageable.

Plan ahead

For first time home buyers, planning ahead is one of the most essential steps to getting a home loan that you can afford to maintain. It’s also not a bad move for second-time buyers as well. A detailed expense and income budget, combined with a mortgage planning calculator will help you figure out the answer to “how much can I borrow?”.

This is much better than finding the home of your dreams, and then trying to fit your life around it. Plan ahead for things like interest rate increases, possible maternity leave, or other planned absences from work, as well as the good things like the promotion that might be around the corner.

Constantly revise

Buying a house is never a one-time transaction. As long as you live in that property, there will always be something to do to maintain, improve or renovate it to suit your needs. Home finance is very much the same. Although you may have received a great deal when you signed up, in a year or two’s time, there may be better loan products out there.

If you have an existing loan, switching to a fixed rate in this low interest environment could save you serious cash. For those looking at their first loan – consider a fixed rate if possible. If you do opt for a floating mortgage, try and set your payments higher than they need to be, so if there is an increase in interest rates, your wallet won’t be surprised. It’s also a great way to decrease the overall amount of interest you will pay.

When considering purchasing a first home, or an investment, paying attention to your finances could be the difference between a great real estate decision and a bad one

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