Keeping on top of your home loan repayments

You’ve just bough your first home or up-sized into a bigger or better one. It’s an exciting time and there’s a lot to look forward to. One thing you don’t want to look forward to is finding yourself in financial difficulty or severe financial stress. Your home loan is probably the biggest financial commitment you’ll ever make and if its not managed properly can become the biggest financial headache you’ll ever have – with potential long term consequences.

So here are my tips for keeping on top of your repayments with a particular focus on those of you who may be a potential or new borrower:

1. From the start, borrow only as much as you can reasonably afford– don’t overstretch your budget. My article What sized mortgage can you really afford? provides some helpful insights and tips on home loan affordability.
2. Build an interest rate buffer of between 1% and 2% into your repayment calculations to make sure you can afford to meet your repayments if rates rise
3. Be careful with your spending (particularly during the first five years if you’re a new borrower). Watch your pennies, prepare and stick to your budget.
4. Try and make extra or lump sum payments off your loan so you can build up equity and establish a buffer in case things go wrong. Just make sure there are no financial penalties for making extra payments. If rates move down, think about keeping your payments at the higher amount thereby reducing your principal more quickly.Use mortgage calculators to run what-if scenarios to see how much you can save in time and interest cost by making extra payments. You’ll be surprised how much you can save by paying off as little as $10 extra a week.
5. Keep your other debt in check – especially your credit card. Don’t fund your lifestyle on credit – this is a sure fire way to get into financial difficulty. Check out my video Blog Good debt Bad debt for tips on how to identify and get rid of evil debt.

My tip:

The most important thing is to not over-commit yourself from the start. Remember, there is a big difference between what a lender says you can afford and what you known you can afford. You know what you can really afford.