September 2000 Volume 81 Number 9 "serving the protectors"
Police Credit Union

Home Ownership, at The Lowest Cost

For many people, borrowing money for their home is the largest financial commitment they will ever undertake. If you want to save money, and own your home sooner, there are a few easy methods to apply to make this happen.

Making higher repayments than required

Only paying the interest on your loan may seem attractive, because you have more money left over for spending. In reality, you may be extending the term of your loan considerably, because you are not reducing the principal amount that you owe. Because your principal is constant, you will also be paying the same amount in interest, instead of seeing this amount reduce every month.

Consistently paying extra towards your loan will have a snowballing effect as your principal decreases every month by increasing amounts as your interest also drops.

Making lump sum repayments

If at any stage you can make additional lump sum payments to the loan, this will also substantially reduce the interest payable and the term of the loan, especially if you do not reduce your required fortnightly/monthly repayment. Interest will calculate on the outstanding balance, while your repayments are based on the original amount borrowed.

Pay off the principal early

In the first few years of your mortgage, all you seem to be paying is interest to the financial institution with very little reduction in the principal. The key to avoiding this is to try and pay off as much of the principal as early as you possibly can which may involve drastically reducing your spending habits early in the life of the loan.

Hedge your bets

Many financial institutions offer “combination” loans. This allows you the security and peace of mind of locking a portion of the loan in at a fixed rate, while giving you the flexibility of floating the balance at a variable rate, to take advantage of rate reductions.

Match your loan with your needs

The majority of home loan products offer many features that provide the borrower with ease of access and flexibility. However, when evaluating which home loan product is best for you, make sure you compare the products on offer. For example, some financial institutions charge penalties for lump sum reductions or for additional repayments, offering you little opportunity to reduce your term. Also, remember the cheapest rate may not be the best. A monthly service fee on the mortgage increases your interest by increasing the principal every month.

If you are unsure of what is the best option for you, it is best to visit the credit union before you go house-hunting. Allow yourself the time to consider all the choices available now, as changing your mind later could prove to be expensive. Experienced consultants will be happy to discuss your particular situation and find the best solution for you, so you can go shopping with peace of mind.

PGA Winner

Congratulations to July PGA winner, David Batt.

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