Home ownership may be the great Australian dream but for many couples, the crippling monthly repayments can fast become a nightmare that sucks up their social life, destroys their relationship and leaves them feeling powerless.
Mortgage educator Michael Lee claims owning a home doesn't have to be this way, and says we are in control of our finances from the beginning, it's just that many of us don't realise it.
Lee describes the mortgage industry as evil and horrifying, and believes that we, the consumers, should be armed with knowledge and be ready to do battle when we shop around for a home loan.
"Everybody's missed the fact that the banks, those prudential organisations who are meant to be looking after us, are out to make money," he says. "All those institutions have commissions, bonuses and incentives ... it's a sales-based industry, it's horrifying."
Lee went into the mortgage industry with the aim of "moving away the smoke" and "taking the confusion away" and his new book, Mortgage Free Debt Free, tries to do just that.
Using case studies of real-life advertising, agreements and sales techniques, it's a dumbed-down user manual on taking control of your biggest debt and eliminating it as quickly as possible - avoiding the common tricks and traps along the way.
The average price of an Australian mortgage, according to Australian Finance Group, is $380,000. But borrowers lose millions of dollars in preventable interest and fees every year, he says.
For those thinking of making the leap into property ownership or those already there and feeling the pinch, here are Lee's top 10 tips to choosing, managing and eliminating a mortgage - and ultimately, financial empowerment.
1. KNOW WHAT YOU'RE GETTING INTO
Lee says he's often asked what the biggest mistake people make when taking on a mortgage and his reply is "taking a blind leap of faith" - that is, getting into something that you don't totally understand.
Paradoxically, the complexity of some mortgage agreements helps to sell the package, he says.
"People go yep, yep, too confusing, too bamboozling, you sound like you know what you're talking about, you're a nice person and I'll go with you. Huge mistake."
2. THINK ABOUT YOUR REPAYMENT BUDGET BEFORE YOUR PROPERTY CRITERIA
"People say `oh I want to buy a $600,000 house or I want three bedrooms' .. nobody ever talks about the budget they need to talk about, and that's how they're going to meet the repayments," Lee says.
"That's where your budget is and that's where it needs to start."
3. USE A PRO-CONSUMER MORTGAGE BROKER
Pro-consumer brokers take a fixed fee so they really are independent, impartial and unbiased.
For details, visit http://proconsumer.com.au
4. COMPARE DIFFERENT LOANS
This means forgetting about interest rates, fees and charges and looking at what your monthly repayments would be.
A pro-consumer mortgage broker or a good individual lender will be able to tell you how much you will pay over the next 12 months, five years and 25 years at current interest rates, he says.
"Then you've got dollars and cents that you can shop on, which makes sense because that's how we normally buy stuff," Lee says.
"If (a lender) can't tell you that cost, then don't do it. They're hiding something."
5. GENERALLY OPT FOR VARIABLE OVER FIXED
You arguably get a better rate with variable-rate mortgages (where the interest rate can change), says Lee, as opposed to loans where the interest rate is fixed.
However, he admits that over the past five years, those who had "fixed" will be slightly ahead - but fixing, he says, involves speculation because you never know whether you're going to be ahead or behind the market.
With a fixed-rate loan, you may know how much you need to pay each month, but your ability to make advance repayments and get ahead is very limited and you are locked in for a period of time, Lee says.
And even though the government claims to have abandoned exit fees outright this year, they didn't do it on fixed-rate loans, which means banks are currently trying to lock people into fixed-rate agreements, he says.
6. INTEREST-ONLY IS EVIL
"I don't do interest only; absolutely positively don't do it," Lee says. Taking an interest-only option for just 12 months on an average loan of $400,000 will add about $6000 or $7000 to your bill, he says.
7. TURN YOUR MORTGAGE ACCOUNT INTO A SAVINGS ACCOUNT...
..and your transaction account into an offset account, advises Lee.
"Both of those accounts, if they have balances in advance - from $5000 to $5, will create an offset advantage in the interest calculation."
The idea is to take money away from your transaction account and out of your wallet, and move it into a mortgage account where you don't touch it but use it to get ahead in your mortgage repayments, he says. Then the transaction account is where your salary goes in and your bills come out.
"Then it doesn't matter if your transaction account gets messed up because your savings are quarantined and safe sitting over there on the mortgage."
8. DON'T BE AFRAID TO REFINANCE
If you're feeling the pinch, make sure you have the right deal on your mortgage, says Lee.
"Go to your existing lender and tell them you think you can get a better deal elsewhere and this is their last chance. Then ask them to give you a total individual cost for you from here until the end of your loan.
"Once you've got that, go to a handful of competitive people or a pro-consumer broker and tell them you don't think you're getting the best deal and ask for a competitive quote and then just put the quotes side by side."
Lee advises mortgage holders to check the market in this way every 12 months to three years.
9. DON'T FOCUS TOO MUCH ON CAPITAL GAIN
"If you're going to sit back and hope you get passive capital gain on a property, you're at the mercy of the market," says Lee. In any case, if you pay off your loan over a 25-year term, you will lose a similar amount of money in interest to what you would have gained in the value of your property - if you're lucky, he adds.
"(It's better to) smash the living daylights out of your debt by borrowing sensibly in the first place."
10. BE REALISTIC
If you've over-extended yourself, perhaps the only way to financial empowerment is to move to a smaller house or a cheaper area.
* Mortgage Free Debt Free: 5 Steps to the Fast Track by Michael Lee is published by Franky Pinklestone, rrp $34.99.
By Caroline Berdon
