Top 10 tips to keep the mortgage monster at bay

By Hannah Nicholas of Money MSN

Is the mortgage monster heading down your front path? If it is, it's time to put some strategies in place to ease your financial burden. Here are our top 10 tips for beating mortgage drain.


1. Make more repayments
You may think that lenders call all the shots when it comes to setting your home loan repayments but you can have your say. Simply setting your repayments to fortnightly (or even weekly) rather than monthly can see you mortgage being slashed over time.

Nicole Pedersen-McKinnon author of Halve Your Debt and Double Your Freedom — Without The Mumbo Jumbo says the key is to make the calendar work for you. She says although there are 12 months in a year, there's not just double that number of fortnights, but double plus two: 26. So if you very simply make half your required monthly repayments fortnightly, you will be ahead by a full month at the end of the year.

Likewise, if you get your hands on a lump sum, perhaps a hefty tax return or an inheritance of some sort, whack it onto your mortgage and watch the balance owing go down and hence the amount of interest you will have to pay each month. No matter the home loan, interest is calculated on a daily balance and charged monthly in arrears. The more often you throw money into your mortgage, the more interest you save.

2. Keep paying at your old interest rate
While recent times have seen interest rates drop, having an effect on your monthly repayment amount, many financial experts advise home owners to maintain their existing mortgage payments (whenever a rate drop occurs) in order to save thousands in the long run. Pedersen-McKinnon advises to try to never to decrease your mortgage payments. "If the rate falls or you remortgage to a better deal, maintain them at exactly the same level," she says.

3. Get the right home loan for you: refinance your loan
Is your loan full of hidden fees and lots of gadgets you don't use? Maybe it's time to look at refinancing to a better option to suit your needs. Make a list of features you'd like (and those you don't need) and speak to your lender or a mortgage broker to see what's available in the market.

4. Cut back on personal spending
It's true, cutting back even just a little on your personal spending can help to make paying your mortgage easier. Bring your lunch to work, cut out those afternoon coffees, use the local library and similar resources and travel locally rather than heading overseas this summer. Every little spare bit of cash helps.

5. Switch to a fixed rate
On a tight budget and prefer to know the exact amount you'll be paying each month? Then it might be time to think about fixing the interest rate on your home loan. Want to hedge your bets? Then consider fixing a certain proportion of your home loan only. But before your make any decisions, be sure to seek financial advice regarding your personal situation.

6. Renegotiate your interest rate
The home loan market is constantly changing so if you've had your loan for a number of years, it might be time to try and renegotiate your current interest rate. Talk to your lender and see what they can offer.

7. Ask your lender for help
If you've lost your job or taking time out to look after your baby, ask your lender about taking a "pause" from your home repayments. Lots of loans offer this facility but beware it could extend the life of your loan, increase your loan amount (as deferred interest will be added to the loan balance) and may only be for a short period (usually three-to-six months) of time.

You can also reduce the amount of your repayments if you are struggling, by:

* extending your loan term;
* changing to interest only repayments; or
* renegotiating your interest rate (as discussed above).

Talk to your lender for more information on the above options. Most lenders also have hardship provisions for their customers in trouble so do seek help if you need it.

8. Be prepared
Planning on starting a family or undertaking a renovation on your property? Then be sure to plan ahead for the impact the loss of income or extra expenses will have on your mortgage commitments.

And there are other ways you can use your mortgage to your advantage. For example, if you have an offset account linked to your home loan, use it to its full capacity by having your salary paid into the offset account that runs alongside your mortgage. Then use a credit card for all your monthly expenses (but be careful not to overspend) and move the money out of your mortgage and onto the credit card only when your monthly bill is due. This will allow any money sitting in your offset account to reduce the amount of interest paid at the end of the month. If you are financially disciplined, this is a great way to reduce the mortgage monster.

9. Be disciplined
Think before you spend. Do you really need that new handbag or computer equipment? Instead, put the money towards your home loan repayments and effectively, the amount you have to repay your lender. If your home loan has a redraw facility attached, don't redraw unless it's absolutely vital. If you find yourself doing this too much, then maybe you should consider another loan type.

10. Get insured
Worried about the current economic climate and your job security? Then it might be a good idea to take out income protection and life insurance policies. This will cover you (and your family) should you lose your job or be unable to work due to illness or injury. If you operate your own business, make sure you have the right insurance in place to cover any loss of income due to fire, theft, damage, etc.

At the end of the day, the key to keeping out of mortgage trouble is not to ignore the problem but to tackle it head on as early as possible and to prepare as much as you can when you are in a good financial position.

Extra $200 a month: everyone's a winner

By Jessica Irvine Economics Correspondent SMH
November 5, 2008

THE Reserve Bank is mounting its most aggressive campaign of interest rate cuts in a quarter of a century in a bid to avert recession but mortgage holders are not getting the full benefit.

Yesterday's surprise 0.75 percentage point cut, if passed on in full by the banks, will save almost $200 a month in repayments on a $400,000 loan. That brings to $545 the total saving on the same loan since the Reserve began cutting rates in September.

In nine weeks, the bank has slashed its official cash rate by two percentage points, undoing nearly four years of rate rises.

More official interest rate cuts are expected before Christmas, with financial markets tipping another 0.75 percentage point move on December 2.

But the nation's biggest mortgage lender, the Commonwealth Bank, risked the wrath of home borrowers and the Federal Government by announcing it would pass on just 0.58 percentage points of the cut to customers. This will short-change them by about $50 a month on a $400,000 loan.

Commonwealth's head of retail banking, Ross McEwan, blamed the decision on higher costs for wholesale borrowing and deposits, and said mortgage holders could expect to get the rest when markets "normalise".

But the Treasurer, Wayne Swan, appeared to lose his patience, saying he was disappointed. "I want to see them pass this on in full as rapidly as possible," he said.

Amid the deteriorating economic outlook, the Government is expected, today or tomorrow, to release updated budget and economic forecasts, revealing the full impact of the global financial crisis on four years of the budget bottom line.

Revenue is understood to be down as much as $10 billion in some years, as capital gains and company tax collections are hit by global sharemarket declines, weaker global growth and tumbling commodity prices.

In his statement accompanying the Reserve Bank's decision, the governor, Glenn Stevens, said that plunging world commodity prices, "significant weakness" in big industrial economies, and signs of a further slowing in China had made it clear that "a further significant reduction in the cash rate was warranted".

While the Government's $10.4 billion spending program to stimulate the economy would help support growth, along with a falling dollar and reductions in borrowing rates, "on balance, it appears likely that spending and activity will be weaker than earlier expected".

Other banks were happy to leave the Commonwealth out on a limb yesterday, refusing to announce how much of the rate cut they would pass on.

A spokeswoman for NAB said its rates were "being reviewed" against overnight developments on money markets to see how much could be passed on. Banks have benefitted in recent months from a flood of money into deposits, accelerated by the Government's decision to guarantee all bank deposits.

The Opposition Leader, Malcolm Turnbull, said banks had no excuse not to pass on the cut in full. "They have the capacity to do so and they ought to do so. The banks have been receiving a lot of support through guarantees from the Government. They are strongly profitable."

The Reserve expects inflation, which has hit 5 per cent, "will soon start to fall". However, the fall in the dollar, which makes imported goods more expensive, meant inflation would take longer to subside.

"The board will continue to monitor developments and make adjustments as needed to promote sustainable growth consistent with achieving the 2-3 per cent inflation target over time," the bank said.

The chief economist at Deutsche Bank, Tony Meer, said the Reserve was attempting to "recession-proof" the economy in the way it had failed to do in the early 1990s. "Clearly the bank's concern today is the same as it was back then … that the economy is heading into recession and aggressive action is required to mitigate … the prospect of the recession being deep and prolonged."

A survey of more than 1800 businesses by the Australian Chamber of Commerce and Industry released yesterday found business conditions were at their worst since the early 1990s. Companies expected to sack staff and cut back on overtime as conditions cooled.

Economists said yesterday's larger-than-expected rate cut revealed elevated concern at the Reserve Bank about Australia's growth prospects.

Craig James, chief equities economist at CommSec, said these concerns had led to the most aggressive rate cuts since the dollar was floated in 1983.

The chief economist at Morgan Stanley, Gerard Minack, predicted that next year Australia would face its first recession in 17 years.

"The aggressive response of policy makers will likely not be enough to offset the combination of global recession, global credit crunch and the unwind of domestic imbalances."

Reserve Bank tipped to cut interest rates by 50 basis points

By Mark Kenny November 04, 2008 12:37am




HOMEOWNERS are in for a boost today when the Reserve Bank is tipped to slash official interest rates. And lower rates are not the only good news.

Petrol is also expected drop by as much as 10c a litre in coming weeks.

But the good news on interest rates is a sign the economy is faltering.

Markets have factored in a likely cut of 50 basis points - or half a percentage point - a third straight cut this year.

However, with international bank-to-bank lending costs still fluctuating, there is no certainty banks will pass on the full benefits immediately.

If passed on in full, a half percentage point cut would take around $80 off the monthly mortgage repayments of the average home loan of $250,000 over 25 years.
And it would mean homebuyers will have saved in the order of $300 a month since the central bank began its current rate cutting phase.

Another cut of 25 to 50 basis points is possible before Christmas, analysts say. The cuts are expected as the economy showed further signs of a dramatic slowdown yesterday as the global financial crisis continues to bite.

The ANZ's job advertisement survey has suffered a massive 34 per cent slump over this time last year.

The Australian Industry Group's Performance of Manufacturing fell to its lowest level since 1992 prompting widespread fears of a significant leap in the jobless rate.

The Federal Government said it was hoped the banks would pass on the full amount of any interest rate cut.

"We would expect the commercial banks to pass through any official cut in interest rates as rapidly as possible," Prime Minister, Kevin Rudd said.

Treasurer, Wayne Swan was similarly firm. Nationally, house prices dropped by 2 per cent in the past three months - their first fall in three years.

However, South Australia bucked the trend, leading the nation with a strong annual growth of 9.7 per cent.

Mr Swan said the Government was determined to manage the economy in such a way as to promote growth.