Page 58 - Smart Money

Chapter 2

doing is paying the interest. With a principal and interest loan, you are
reducing the principal and interest. So you are going to pay your house
off over the 30 years, whereas with interest only, your loan balance never
reduces and you’ll always be in debt to the bank. When your interest only
period expires, you will only have 25 years to pay off the full amount of
the loan plus interest.

If you have credit cards, find ones with the lowest interest rate. A lower
interest rate equals more cash flow because the repayments are lower.
You can refinance your credit cards, but how many times do you want to
refinance? Just pay them off.

That’s also another way of reducing what you have to pay on your
mortgage – refinance. Get a better rate and still make the same repayment
as before, because that is going to reduce the loan quicker. Always keep in
touch with your broker and make sure you are on a great deal, as that can
also save you money and get you ahead faster.

The broker will know if they can get you a better rate. Sometimes when
you are in mortgage insurance territory, there is no point moving to a
better rate, because you have to repay your mortgage insurance. So talk to
your broker before you apply and don’t waste your time and potentially
your money. Your broker can tell you whether it is going to work or not.

Key Point

If you are making weekly payments instead of fortnightly or monthly,
you are reducing your principal quicker, which is also reducing your
interest payments. The more often you pay into your home loan, the
more interest you are going to save.

There is another way to get ahead that we haven’t discussed yet and it has
to do with the equity you have in your property. Once you have owned
your property for a while, you can use the equity you have as leverage to
borrow again and purchase another property as an investment. We’ll be
talking about this in the next chapter.