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How to manage your mortgage

SEPTEMBER 22, 2016

A mortgage to purchase a home is probably one of the biggest loans that you will ever take out in your lifetime. Taking out a loan with a mortgage provider, such as a bank, should never be taken lightly; after all, you will most likely be paying off your mortgage for most of your working life.

Figuring out how much you can afford to pay back monthly will be your first step in deciding how large of a mortgage you can afford.

As with saving for your retirement, you will only be able to properly calculate how much you can afford to borrow once you have worked out your monthly budget. This should include a sum of all your earnings (and your partner’s if you are entering into a joint mortgage) less your pension payments, versus all your combined expenses. Take into consideration necessity items, such as food, utilities, gas for car, school fees, etc. when planning out your budget. But don’t forget to include regular costs for entertainment/dining out, travel and even that occasional latte, which all adds up over time. Determine how much you would like to put away in saving each month and then you can better calculate how much you have over for paying off a mortgage.

You should also consider the interest rate that is being charged and the type of loan you take out, as some banks offer flexible rate mortgages while others are fixed. More importantly, you should realise that mortgage rates will fluctuate with interest rates in general (even fixed rate mortgages are usually only fixed for a certain period of time), so you need to be able to accommodate an increase in interest rates, should it occur.

Once you begin making regular payments it is worth remembering that your monthly mortgage payments will be comprised of a percentage that’s paying off the actual amount borrowed and a percentage of interest that you must pay to the bank each month, so ideally it is best to pay off your mortgage as soon as you can. Making extra payments on top of your regular payment means you could manage to save thousands of dollars in interest payments over the life of the loan, because every time you repay some of what you owe, you are charged less interest, so more of your future payments go towards repaying the outstanding principal.

Taking on a home mortgage is a big responsibility but with good planning and prudent saving your dream of buying your own property can be a reality.

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