In this section are some tips on saving for a deposit as well as getting rid of debt. Also, be sure to read my tips on repaying your mortgage more quickly, which can reduce your overall loan term and save you thousands in interest!
Saving For a House Deposit
Starting out on the home buying journey is exciting, but it can be tricky to get started. Here are some ideas for getting the deposit together for your home purchase. Don’t forget to see if you are eligible to use your Kiwisaver funds, and/or the Homestart grant.
Start Saving A Regular Amount Now
Save a regular amount of your income as soon as you get paid. Set up an automatic payment to transfer money from your transaction account to your savings account each payday. A good savings history really helps when applying for a mortgage – banks love to see that you’ve managed to establish a budget and stick to it, towards your goal of home ownership. It also helps you to figure out what level of mortgage payment you are going to be comfortable with.
Tips To Help Boost Your Savings
Create a budget and stick to it.
Cut back on luxury spending; things like coffees and takeaways.
Pay off your debt. Start with the debt that has the highest interest rate.
Be realistic; allow yourself some spending money as you will be more likely to stick to your budget.
Paying Off Debt
If you have a lot of debt, this can sometimes get in the way of being able to save for a house. If so, it is time to develop a strategy that will get you into better financial shape.
Get a clear picture of your debts. Make a list of your debts. Be completely honest – every loan, every credit card, every store card. It is not uncommon to be in a little bit of denial about what you owe and how much it is costing each month. Write them down on a piece of paper (or spreadsheet) with headings for interest rate, fortnightly repayments, and the total outstanding balances.
Get rid of that debt. There are a few methods of paying off debt, so the trick is to find the one that works for you. If you pay off the highest interest debt first (like credit cards) you could save the most money. On the other hand, if you pay off the debt with the least amount owing first, you may find yourself motivated to keep going with the bigger ones. Once the first debt is paid off, put your repayments onto the debt with the next lowest interest rate… and so on.
Tips To Repay Your Mortgage Faster
Over the first few years of your mortgage, it may seem that you are only paying interest, and the principal isn’t reducing at all. Unfortunately you’re probably right, as this is one of the unfortunate effects of compound interest. So you need to try everything you can to get some of the principal repaid early, then you’ll start to notice a difference.
Every dollar you put into your mortgage above the minimum payment attacks the principal. This means that, down the track, you’ll be paying interest on a smaller amount. Here are some tips to help you cut years off the term of your mortgage.
Talk to me about your repayments. If your loan repayment amount is calculated monthly, you can make significant savings by halving your monthly repayments and paying fortnightly instead. This method will result in you paying an additional month’s worth off your mortgage every year, reducing the principal faster, and the total interest payable.
Pay extra from the start. Regular additional repayments made right from the beginning of your loan term will have a much greater effect on the overall time and cost of your mortgage than starting five or ten years into the loan. Even if you are already more than five years into your loan term, you can still make a considerable saving by increasing your repayments now.
Keep your mortgage payments the same if interest rates fall. The extra money will go towards reducing your principal, which means you will pay less in interest and repay your mortgage sooner.
If you top up your loan to consolidate debt or buy a car, set it up as a separate loan and pay it off over a short (3-5 year) time-frame. I am happy to arrange top up loans for existing customers, and will help you structure it effectively.
Review your home loan regularly, especially whenever a fixed rate expires. Come back to me at every re-fix time (no charge), and I will help you review your home loan, and see whether we can make any small changes to help you pay it off more quickly.