5 WAYS TO BUY YOUR DREAM HOME AND STILL ACHIEVE YOUR LONG TERM GOALS
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Whether you are thinking of upgrading your home, renovating or extending, it is important to understand how the loan that you take on will affect all aspects of your financial situation. The wrong loan, or a hastily made decision based on fees or a discount interest rate, can turn your dream into a financial nightmare. Take a look through the following tips to help you understand how the right loan and right structure can help you buy your dream home and still achieve all of your financial goals.
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1. The lowest interest rate is NOT the most important thing Whether you’re a first home buyer, are looking to upgrade to your dream home or you’re buying an investment property, it’s essential that you have sound advice – and a plan. You might be able to obtain a low interest rate from a discount broker, but having a well-structured loan with features that give you flexibility can make a big difference. Many lenders and brokers offer a discount rate to transfer an existing loan, or a honeymoon rate in the first year. However, check the fine print! Often, when the discount period finishes you are left with an interest rate that is significantly higher than the standard rate and an uncompetitive loan with high break fees.
2.
What you have saved in the first year on repayments due to a low interest rate, you repay many times over during the rest of the life of the loan.
Ways of structuring your loan so that you can get a psychological edge over your debts
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Fixed rate, variable rate, interest only, Principal and Interest – there are so many things to consider when taking out a home loan. A good broker can help you work through these terms to determine what the right mix is for you.
However, at Milestone Lending Solutions, we believe one of the most important aspects to repaying your home loan is how you approach it and how committed you are to repaying it sooner. There is nothing more disheartening than looking at a home loan statement where the balance never goes down! We can structure your loan so that you are able to achieve repayment goals easily, which gives you the psychological advantage and motivation you need to keep going. It’s a proven method, getting the maths to match the psychology!
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Sophisticated = expensive: Use a simple mortgage product
Do you really need all the bells and whistles?
A basic principal and interest home loan often has much cheaper fees and a lower interest rate. Home loans with fancy features are designed by banks to keep you in debt longer. Redraw facilities generally extend the life of a traditional home loan because they tempt you into redrawing your repayments to purchase things that you can probably do without. The temptation is often too great!
Stop and think about what is more important to you – repaying your home loan quickly or achieving a short term whim that might end up costing you dearly.
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Ability to make additional repayments
P
Loan split between fixed and variable rates
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Redraw facility for extra repayments you have made
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Offset accounts
P
Repayment holidays
P
Flexible repayment amounts
P
Home loan portability (same loan, different property)
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4.
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A shorter loan term can save you thousands
However it also benefits the banks as it keeps people in debt longer. A much better strategy is to work out how much you can afford (push yourself a little), then calculate how long the term of the loan will be with this repayment amount, and set the loan term accordingly - with a small buffer. For example, if you can afford the repayments on a loan term of 18 years, set the loan term to, say, 20 years. This will provide the discipline to repay the loan earlier and could save you thousands of dollars over the course of the loan. Consider the following charts that show the repayment periods and total interest on a home loan of $500,000. We have assumed a principal and interest loan with an interest rate of 6% pa.
Chart 1 – 30 year loan term Total
Principal
Monthly repayments
$2,998
1,250k
Amount owing ($)
1,000k
Total interest payable
$579,191
750k 500k 250k 0k 0
10
20
30
Years Note: the results from this calculator should be used as an indication only. The specific details of the loan will be provided to you in a loan contract. Please contact Milestone prior to taking out a loan so that we can discuss your personal financial situation and whether a loan is appropriate for you.
With a 30 year loan term the monthly repayments are $2,998 and the total interest payment over the term of the loan is $579,191 (that’s in addition to the $500,000 borrowed). Chart 2 – shorten the loan term to 20 years and see the difference in total interest! Total
Principal
1,000k
Amount owing ($)
Many banks today offer 30 year mortgages, which are supposedly designed to help home buyers afford the home they want. The loan term and interest rate sets the minimum repayment amount – so a longer repayment period means a lower minimum repayment amount.
Monthly repayments
$3,582
750k
Total interest payable
$359,717
500k
250k
0k 0
10
20
Years Note: the results from this calculator should be used as an indication only. The specific details of the loan will be provided to you in a loan contract. Please contact Milestone prior to taking out a loan so that we can discuss your personal financial situation and whether a loan is appropriate for you.
By reducing the loan term to 20 years, the repayments increase to $3,582 per month. However, the total interest paid over the term of the loan has reduced to $359,717 – that’s a saving of over $220,000 in interest!
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5.
Use the services of a professional There are literally hundreds of different loan products available now. While that makes it harder for you to choose the right loan, it does mean that there is an ideal lending solution for you out there. It’s just a matter of finding it. And that’s where a professional mortgage broker comes in. A mortgage broker will steer you through the different lenders and loan options available. They will also help you to work out which features you really need and which ones you can do without. This can save you fees and lots of time working through the options. Your situation might not fit the norm – you may have a low deposit, be a small business owner or have a more complex personal situation. A mortgage broker can look at your situation and determine which lender will fit your needs and be able to accommodate your financial position.
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We understand the importance of financial planning. We work with your planner to ensure your loan works in conjunction with their wealth creation, debt reduction and lifestyle planning needs.
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STRUCTURE YOUR DEBT FOR A PROSPEROUS FINANCIAL FUTURE How the right loan will allow you to still have it all Milestone’s approach looks at all of your financial goals – not just how much you can borrow based on the standard questions. We look in detail at your situation so that the loan you take on meets your needs – now and into the future.
Milestone Lending Solutions are licensed through many different lenders, allowing us to find competitive rates on all types of property loans. Milestone’s dedicated mortgage brokers are able to assist you with the following products: • Mortgages to upgrade to your dream home • Home loans for first Home Buyers
Milestone understands the benefits of good financial planning
• Investment Property Loans
Milestone understands the importance of financial planning. This allows us to construct our clients’ loans in conjunction with their wealth creation, debt reduction and lifestyle planning needs.
• Equity release loans
• Construction Loans • Commercial Property Loans
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WE HELP EVERY STEP OF THE WAY 1.
2.
You and your finances are our only priority.
You have Choice.
We work with your adviser to
Milestone Lending Solutions are
provide you with a holistic plan to
licensed through many different
create wealth.
lenders and can find a loan that is best for you.
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3.
4.
5.
Better service means a better experience.
You Save Time.
Communication is the key.
We are able to work one-on‑one
Milestone Lending Solutions will
We will assist you throughout
with you to evaluate your specific
do as much of the paperwork
the process and provide you with
needs and find a lender that
possible and follow through the
the information you need before
suits you and your financial plan.
entire process with the lender
buying. We will keep you up to
Working as a team with your
from start to finish, making it as
date with the progress of your loan,
adviser means that your loans
hassle-free as possible for you.
so you’re not left wondering.
can be structured to suit your long term financial goals.
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WHAT OUR CLIENTS SAY ABOUT THE MILESTONE FINANCE TEAM From considerable credit card debt and rather uncontrolled spending, to being financially secure - debt free, with savings in the bank and a deposit big enough to start building our first house later this year - all in less than 18 months. Simple advice, with outstanding results. All thanks to Aaron, Andrew and the rest of the Milestone team. This all would not have been possible without their guidance and support along the way. Thanks guys! Look forward to building on our successes with you.
For more information about structuring your debt for a prosperous financial future, contact Milestone Lending Solutions on (02) 6176 3110, email us at info@milestonelendingsolutions.com.au or visit our website www.milestonelendingsolutions.com.au.
PAUL AND EVA
AMANDA AND SHANE
Milestone Financial Services ABN 68 100 591 508 trading as Milestone Lending Solutions is an Authorised Representative and a Credit Representative of AMP Financial Planning Pty Limited, ABN 89 051 208 327 AFS Licence Number 232706. Any information given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any information, you should consult a financial planner to consider how appropriate the information is to your particular situation. The calculations in this guide do not take into account any fees and charges, e.g. application fees. The results provided are an approximate guide only.
keepcreative.com.au | february 2018
Having each section of your personal finances broken down and mapped out to give you attainable goals make things a lot more achievable... I really appreciated the regular communication as well, at no stage was I left wondering what was happening. This is an extremely sound service to help you achieve your financial goals whatever they may be.