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How to find extra cash to lower your mortgage


Owning property is the great Australian Dream, whether it is an investment property or a place to raise your family. Nick Cleal, a financial planner with RGA Financial Group Pty Ltd and a member of the Financial Planning Association (FPA) says that "for most, keeping up with your mortgage repayments can be a trying task. The cost of living is increasing leaving people with little or no extra cash."

"Finding additional cash doesn't always have to mean getting a second or third job. Often, people don't realise that simple changes can lead to big savings if they are willing to adjust their lifestyles."

"Consumers should also realise that it's important to have a holistic view of their financial situation and budget accordingly. This should include your mortgage repayments, mobile bills, household expenses, entertainment, car and luxuries," he said.

"One of the key benefits of a financial planner is that they can help you to reach a point of financial security and independence where you can control your expenses, make your repayments and be better prepared for any unforeseen circumstances."

Two easy ways to increase your repayments

1: Switch from monthly to fortnightly / weekly repayments

"Making fortnightly repayments means that you can manage your expenses from week to week. Smaller short term financial goals are easier to achieve and it means that you can avoid an accumulation of month end expenses," said Nick.

"Making monthly repayments means that you only make 12 repayments a year. You make 26 repayments if you choose to pay fortnightly. This means you effectively make one additional monthly repayment a year. For example, if you have a $300,000 mortgage, with a 30 year term at 9 per cent per annum, then fortnightly repayments will reduce your loan period by approximately 8 years."

"Endeavour to make your regular repayments slightly higher from the start. This will also reduce your loan term or provide an effective emergency fund or buffer if interest rates rise."

2: Make small sacrifices to get big results

A coffee a day keeps the repayments away!

"Most people don't realise just how far their money can take them." A takeaway coffee a day may cost around $3.00. This equates to $780 a year.

"This could be an additional $780 a year on your mortgage repayments!" People are often searching for additional sources of income to cope with the expenses. Sometimes we don't realise that simple, small sacrifices can have such a big impact on our financial situation," said Nick.

"Similarly, sacrificing a packet of cigarettes a week can have a significant impact on your savings."

A packet of cigarettes costs around $11. This equates to approximately $572 a year.

"By giving up a packet of cigarettes a week and making your own coffee you could manage to make additional repayments of $1,352 per annum off your mortgage as well as the added bonus of improved health."

Nick further stressed the benefits of fortnightly payments. "Looking at the table below, you can see that by giving up the two things above, you could save $52 a fortnight which is $1,352 a year. Additional fortnightly payments of $52 would reduce a loan term by two and half years.

For Matthew Walker, a Certified Financial Planner TM professional with WLM Financial Services and, a member of the FPA, the most important thing for home buyers and owners is to be clear about their goals and financial position.

Mortgage checklist - 9 things you should think about

1. Can you afford to have a mortgage?
2. Is this the right type of mortgage for you?
3. What impact does it have on your cash flow and other goals?
4. Does it suit your financial plan / strategy?
5. Should you use principal and interest or an interest only loan?
6. Are fixed loans or variable loans more suitable?
7. How can you pay this loan off faster?
8. Can you get a better rate by refinancing?
9. What would be the benefit of refinancing and what is the best way to do it?

How to protect your family home?

"Anyone who is taking out a mortgage, particularly if they have a family, must address their insurance needs," said Matthew. "The sensible approach when taking on such obligations is to protect the downside by taking out insurance. Consumers may be caught short and unable to fulfil their financial commitments if they are unable to work due to injuries or other adverse circumstances."

Insurance

"There are many different types of insurance cover on the market. Your financial planner can help you to decide which type of cover suits your situation and your current and future needs," said Matthew.

"To help cover repayments and lifestyle expenses Income Protection is a must, although it only covers 75 per cent of pre-disability income."

"Total and Permanent Disability (TPD) cover may be useful to remove the liability and reduce impact on cash flow."

"Life Insurance can help remove the liability upon death, leaving beneficiaries more financially secure during the time of bereavement," said Matthew.

"When looking at insurance, see what can be put through super to help reduce the cash flow impact and reduce tax."

"Again, it's really important to speak with your financial planner to determine the best options for your particular situation," said Matthew.

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