Home buyers can face tough competition when it comes to finding and purchasing their dream home. Learn how to find the right one for you!
Being in a sound financial position can often mean the difference between a successful property purchase and missing out.
Macquarie Bank suggests that the following areas should be considered when taking control of existing debt prior to securing a mortgage. It is also important to seek professional advice to identify strategies most appropriate for your circumstances.
1) Draw up a budget
A budget allows a better understanding of expense habits and can help to identify areas where you can reduce or stop your spending. Without a budget, you may find it difficult to control your expenditure, reduce debt and create wealth.
A budget should:
- Identify where you spend money
- Evaluate current spending
- Set goals in line with your financial objectives
- Track spending in line with your goals
Watch out for:
- Cash leakage – if cash in your wallet seems to disappear without explanation, you may need to track what you’re spending it on
- Counting on windfalls – don’t include income that you are not sure you will receive, such as tax refunds
- Spending creep – as your annual income increases, don’t start spending on luxuries until you have eliminated your non-tax deductible debt
2) Pay off high-interest debt first
A way to reduce debt and lower expenses is to reduce the total cost of your debt by targeting high-interest debt first and using any extra cash available to pay it down as quickly as possible.
Ensure your credit card interest rate is competitive and make sure you pay your credit card balance before the end of the interest-free period.
3) Review the frequency of your home loan repayments
Check if you can increase the frequency of your home loan repayments from monthly to fortnightly or weekly. This is likely to reduce the total interest payable during the term of the loan. If you cannot increase the frequency of payments, consider refinancing with a home loan that allows you to do so, and check for any additional fees
4) Using alternative lines of credit
If you need credit options, you might explore a line of credit. These enable borrowers to draw funds against the equity in their property as required. Borrowers can either take out a line of credit as a new stand-alone home loan or choose to split their current home loan with a line of credit loan. It is essentially a large revolving overdraft against your property.
It is important to understand the risks involved in using lines of credit, and you should seek expert advice before applying for a line of credit.
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