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Financial Help : 10 tips to Manage your Mortgage

Do you need help with your finances?

The key message of this section is to know your budget and stick to it so you can build equity in your home. It might sound easy but experience suggests many of us struggle at this first point.

The idea of seeking assistance to manage your personal finances does not come naturally to most of us - we should be able to look after ourselves, shouldn't we?

Financial Analyst: Maintaining Your Life Balance and Bank Balance

Wrong! This is a complete social myth!

Ask yourself, what training have you had in financial matters? Who was your mentor to offer you learning and guidance experiences in finances, mortgages and loans? Most of us have little to show here, so it is no wonder that we have problems with financial matters.

It is a sad fact that while most people will readily acknowledge that businesses need sound financial management to grow and prosper, rarely do they apply the same principals at the personal level.

In order to grow and prosper your personal life, you must have strong financial management skills so that you have the confidence that you are making the best decisions throughout life, and are able to manage issues as they arise. For most of us, this means establishing a relationship with financial advisor.

Here are some useful tips to help manage your mortgage.

10 Tips to Manage your Mortgage.

1. Save money at every opportunity

Now, It's very easy with all the excitement of buying your new home to loose sight of your financial reality, especially when you find that dream home, and it only costs a bit more!
It's just another $10,000, maybe $20,000, then there are the few things you need to do to personalise your new home, maybe another $10,000. Suddenly your $400,000 budget has leapt to $440,000 or more, but by now you have fallen in love with this property and want to live in it no matter what the cost.

Buying your home based on your emotions is a good thing to do, as your home is an extension of your you, your likes & dislikes, your personality, and after all you have to live in it and love it.

But emotion alone is dangerous and will lead to your financial undoing.

Your best safeguard against falling into this trap is to do a lot of market research into the homes for sale in your area, what features you get for the prices and how long they are on the market.

Stick to homes within your budget. If you have not prepared a budget to calculate just how much you can afford, then stop here, until it is done. Ask for assistance - you are not expected to know how to do this alone. see Tip 2.

Once your budget is established, you must stick to it.

Negotiate on price and cut out the expensive extras - the more you save here, the you grow exponentially in later years.

NB: If you are buying an investment property, and find yourself getting caught up in an emotional purchase, stop immediately - this is an red flag warning that you are in imminent danger. Seek help from your financial professional. Buying investment properties has nothing whatsoever to do with emotion, but rather is purely a numbers & risk based decision to give you a financial return later in life.

2. Budget before you buy

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One of the keys to managing your mortgage effectively is to draw up a budget that shows all of your income and expenditure and be sure to balance it to your bank account so that you are sure you have not missed anything. When you are doing this, it's Ok to cut out optional consumer expenses (providing you can stick to it), but make sure you have a contingency allowance each pay period to cater for the unexpected expenses of life.

It's not enough to know how much a lender is prepared to loan to you - you also need to know how much you can comfortably afford to live on. To do this you must consider the type of lifestyle you want to live, and whether you’ll want to put extra money aside to pay off your mortgage sooner and build up equity in your property sooner.

When entering the cost of your mortgage, always add 2% to the actual interest rate and use this figure in your budget. This simple means of stress testing your budget will help protect you from future rate rises and other costs.

If you feel daunted by the budgeting process, call your financial advisor for help. At Loans to Lifestyle we have an easy to use budget planner which we provide free of charge to our clients.

3. Build a Cash Reserve.

Credit cards are one of the biggest debt traps Australians regularly find themselves in because they offer an easy source of credit and the opportunity to conveniently deal with those so-called "emergency expenses" that you may not have budgeted for.

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Keep your credit card limit low - no more than $2,000 and pay it off each month. Work with your financial advisor until you develop the discipline to do this yourself.

Your budget should have a contingency allowance each pay and the mortgage repayments youBuild a cash reserve to provide financial help in times of crisis entered in will be larger than you actually pay, because you calculated a repayment using a rate 2% more than the actual.

In addition, your budget must have a surplus of say 10% of your take home income.

You must take whatever steps are necessary each month to protect these amounts and allow them to build into a cash reserve. Put them into a separate account if necessary.

If you have consumer debt (hire purchase, car loans, store loans etc), your financial advisor will assist you with a detailed plan to pay this off as quickly as possible so that you can start to build your cash reserve.

Cash-flow is absolutely critical to financial independence and personal growth, so ensure that you have taken every necessary step to prepare and live to a balanced budget.

4. Don't Panic when the unexpected happens. Seek our assistance.

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We live in financially turbulent times, and sooner or later everyone will fell the chill wind of financial uncertainty. The key is not to panic, but seek good solid financial advice from a professional.

Your budget process will protect you from many of the smaller pot-holes of life, and your financial advisor will have recommended a strategy to provide a safety-net in case of larger catastrophes.

You will be well protected, so just stay calm and call your financial advisor.

5. Boost your cash flow by using interest-only mortgage finance - CAUTION!

One of the very effective strategies your financial advisor will discuss with you, if you are experiencing budgetary constraints is the possibility of paying only the interest on your mortgage, instead of the principal and interest. Your financial advisor will advise you on the best way to achieve this for your particular lender.

While this approach will free up substantial cash each month, it is important to realise that you are not reducing your mortgage, and therefore any increase in equity in your home is only due to market price increases. On the other hand, you are also exposed to any market downturn and a resulting reduction in equity may not be acceptable to your lender. For owner occupier home loans, the interest only option is therefore
considered only as a short term solution.

For those folk with a high degree of financial discipline, interest only finance offers the opportunity to pay off your loan quicker than with a principal and interest loan without any penalties, if you have surplus funds available.

6. Reduce your Consumer Debt.

You're home loan is about the biggest debt most of us have in our life, so you need to stick to your budget and the basic budgeting principles. One of the biggest threats to your financial independence is consumer debt (bad debt), so you must avoid those tempting interest free offers extended to you by department stores and credit card providers. Debt is debt, no matter how it is sugar coated or disguised, and like a cancer, it will relentlessly erode away at your financial position, eventually destroying you if it is not controlled.

If an offer sound too good to be true - it probably is! Call your financial advisor for an explanation if you feel tempted.

7. Consider the stability and longevity of your income stream

A generation ago, most people had one or two jobs for life. That was considered stable employment by lenders and the community.

Today, with the economy currently in a continual state of flux, many people have casual employment and changed jobs every few years. It is therefore essential that you consider what you can do to enhance your prospects of employment if your current job ends.

Things to consider include ...

If you adopt these simple steps, you will be well placed to ride through any future financial storm.

8. Make the most of Free Money

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The First Home Owners Grant is available to first home buyers and as well as a cash bonus, pays the stamp duty on the property being purchased. It does have strict conditions, but the size of the grant makes it worth while to live with the conditions and get the benefit of the grant.

Also available are real estate industry grants via the major banks, depending on your state.

9. Build Equity in your home - it's your protection.

The most important thing that I can tell people these days is to build equity in your home and keep it there. When the going gets tough , and at some point in your life it will, your home's equity will be available to contribute to getting you through.

If you have a lot of equity in your home, say greater than 50%, you may consider using some of that equity as leverage for another property, but always try to maintain at least 30% equity in your home.

It's worth remembering that although your home loan repayments are not tax deductible, highly leveraged investments (ie greater than 80% borrowings) are very vulnerable to fluctuations in property values. Higher equity amounts (30% or more) will offer you protection from these fluctuations, which we are seeing more often in recent years. In our opinion, the risks associated with highly geared assets far outweighs the potential, often trivial, tax savings offered by these highly geared investment strategies.

10. Seek Professional Advice.

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Your home loan will be one the biggest commitments you will make in your life, and to do this you will have to negotiate with skilled financial professionals working for lenders, who at times you may think are more interested in finding reasons not to lend to you.

Without a comparable skilled professional working for you, it is very unlikely that you will either get the best loan for your situation, or get a loan at all.

A skilled financial engineer will be able to assist you in planning your purchase, your repayment strategy, manage the risks associated with the debt, and advise you on potential leverage opportunities. The fees you pay will be money well spent for the peace of mind you will get knowing your have a solid professional financial life plan in place. Like everything, if the service offered comes for free - it's probably not from a licensed finance professional who is able to provide you with a full financial plan for your life.

Please contact us today using the Express Enquiry Form at the right for further information. Together we will get you there.

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