Owning a home is like Nirvana to some of us. It’s the goal we’ve been working towards, the ideal that we something didn’t think we’d ever achieve. It’s bliss!
But is it really?
It’s a roof over our head, somewhere to keep our belongings and a place that seems to need constant cleaning… It’s also a place to create memories, build relationships, grow our family, entertain our friends and build a valuable asset. There’s a lot you can do right when you buy a home, but there are also some mistakes that are easy to avoid if you know what you’re looking for.
Mistake #1 – Not having a spending plan
This is the biggest pitfall and the easiest one to remedy.
Once you have a workable spending plan in operation, everything else falls into place. Paying bills is done automatically, saving is done automatically, you know what you can spend on each category and you’re not getting surprise credit card bills that destroy your plans for your next holidays.
Mistake # 2 – Not making extra repayments in low interest rate periods
We all love low interest rates on our home loans, but do we take advantage of them?
Do we make extra repayments while the rates are low that can take a chunk off the principle? When we get a loan, we should be comfortable paying an additional 1-2% interest more than required – just in case of rate rises. If we can make that additional payment, then why don’t we? It will cut years off the term of our loan and save us thousands in the long term, yet we’ll barely notice the difference in the short term. Make extra repayments!
Mistake # 3 – Failing to plan for extra or unexpected expenses
My grandparents always taught me to save for a rainy day, and it was good advice. When you’re creating your spending plan, make sure you save for that rainy day as well as your next holiday or car or whatever your savings goals are.
Mistake # 4 – Paying too much interest on your home loan
Whether you’re paying too much interest on your home loan or you’re not monitoring the interest rate that you’re paying, you’re doing yourself no favours. A couple of years ago, a good interest rates was 4.5%. Repayments, at 4.5%, on $500K over 30 years are $2533 per month. Today, a good rate is 3.59%. Using the same figures and term, repayments are $2270 per month. A great rate is 3.09%, with repayments at $2132 per month. I know where I’d prefer that additional $400 a month to go, don’t you? That’s nearly $5000 extra you’re giving your lender a year!
Pay attention to your interest rate.
Mistake #5 – Not having a buffer of extra repayments
Having a buffer is a good thing. We need to know that we can weather storms and cope with changes in our circumstances without the threat of losing our homes. Having two or three extra repayments up our sleeve is a great little insurance policy to help us through any of those storms.
Mistake #6 – Being loyal to one lender It’s good to be loyal to your hairdresser or your dog groomer, but there’s no need to be loyal to your lender! If there ever was a product that you should be shopping around for, then it’s your home loan. And you don’t even have to do the shopping because your broker will do it for you!
You don’t need to be loyal to your lender.
You just need to find the loan that has all the features and benefits that you need, at a great rate.
It’s also a good idea to not have all your loans with one lender if you’re planning on building a property portfolio. A good broker will walk you through your options.
Mistake #7 – Having equity that’s not working hard for them
Don’t just sit back and do all the work yourself! Put the equity you’ve built in your home to work. Once your home has increased in value and you’ve paid off part of your loan, talk to your broker about releasing some equity to invest in another property.
If you invest well, leveraging the equity in your home will set you up for your future.
Make sure it’s working harder than you!
Owning a home is fabulous. But that’s just the beginning of your story. Make it work for you.
