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Here are some methods that can help you achieve similar results. Not all of them will suit everyone, but it’s likely everyone will find some that appeal.

1. Negotiate to get the best deal

Reduce your fees for an instant surplus that can reduce the size of your loan. Many borrowers take the first loan they’re offered without trying to negotiate a better deal. Others simply respond to a seemingly attractive advertisement without looking carefully at all the aspects of the loan.

Ron Guthrie, head of The Mortgage Bureau, says both approaches are a mistake. “Different mortgages suit different people, so it’s worth taking the trouble to do some research so as to find the best loan for you,” he says.

If you intend to use your home for wealth creation then mortgage features will be on top of your shopping list. First-time home owners would be more concerned about the ongoing rates and fees than whether they can redraw their loan to gear into the stockmarket. Often, the best and easiest way to find the best home loan is to use the free online research provided by Cannex (www.ratecity.com.au) and Infochoice (www.infochoice.com.au). Significantly, however, the features of most mortgages aren’t set in stone, which means it is often possible to negotiate a lower rate or to modify conditions that don’t suit you.

“Once you are borrowing more than about $150,000 or so, you are in a position to at least try to negotiate a better deal,” says Willink. Orrock at InfoChoice says it’s also a mistake to think that once you’ve signed up for a loan, you’re stuck with it. While some mortgages are inflexible — and therefore best avoided — others allow you to repay the loan in full at any time, giving you the flexibility to refinance into another, more suitable, mortgage.

Save on upfront fees

This will involve some costs but, in most cases, these can be recouped quickly due to the savings you make by switching to a better loan. One fee that could offset any savings made by refinancing is an early repayment fee. Make sure you factor in this cost if you do plan to refinance. You can often lower the cost of switching by negotiating for the new lender to cut or cancel its upfront fees.

This is also the case when you’re applying for any new loan, not just when you are trying to refinance. It’s worth negotiating because fees can be high: many lenders try to charge an application fee of $600 or more, a valuation fee (often more than $300) and a loan settlement fee of $200 or so. Also, many try to insist on mortgage insurance, especially if you are borrowing more than 80% of the value of your new home. This can cost as much as 1.2% of the loan amount.

Remember, if you can negotiate to reduce any or all of these fees, you’ll have an immediate surplus that can be used to reduce the size of your loan. If you aren’t a good negotiator, you might want to use a mortgage broker to help find a good deal. A good mortgage broker should not charge you anything because they get paid by the lender they refer you to. Payment for a mortgage broker is typically made in two parts — a lump sum payment and an ongoing trailing commission (see next tip).

2. The cheapest loan isn’t always the best

Plan ahead from the start to avoid being stuck with an inflexible loan. It might seem a contradiction, but the best loan for those who want to pay off their mortgage as soon as possible may not be the one with the lowest initial interest rate.

Guthrie at The Mortgage Bureau warns that some loans that have a low initial interest rate revert to a much higher rate after just one year. “It is wise to be wary of introductory rates,” he says. “It is important to look behind the headline rate to see if the loan’s other features are competitive.” Once again, this warning applies not only to those about to buy a home but to existing homebuyers who are tempted to refinance into a loan that appears cheaper.

Beware the headlines

While the new loan may save money in the first year or so, it could end up being much more expensive over the longer term. And the deceptive appeal of a low introductory rate is only the most obvious trap. Even a loan with a fairly standard, but still competitive, interest rate may end up being more expensive than you expect. This is because some apparently cheap mortgages are very inflexible, giving you limited scope to pay off the loan quickly.

Willink cites the Wizard Rate Breaker* loan as an example. This loan, he explains, has a competitive interest rate, but it also has a major drawback — you can’t make extra repayments. Unless you switch to a new loan, you face the prospect of being stuck with it for up to 30 years, paying interest all the time.

Remember, even if at the time of taking out your home loan, you are focused on getting the loan that allows you to borrow the most you can, it is important to plan ahead.

Being stuck with a loan that doesn’t allow you to make additional repayments will be very annoying if you end up having the financial capacity to do so. At that point you may have to incur refinancing costs in order to switch to a more flexible loan, a process that may end up costing you as much as you saved by taking out a low-interest rate loan in the first place.

These days you can safely bet that if the headline rate is rock-bottom cheap there’ll be a few strings attached. Always check the flexibility — whether you can pay fortnightly and if there are any exit fees.

3. Save by avoiding the common traps

Don’t get caught with unexpected fees or unreliable brokers. Fixing the interest rate on your home loan can be a smart move as you can save a lot should rates rise. Unfortunately, it can also be costly. For one, you may not be permitted to make extra repayments until the fixed-rate term is over — you’re locked in to paying interest on the full amount for the fixed term.

Also, if you want to switch out of the fixed-rate loan to a variable rate, many lenders will hit you with “break costs”.

This is the difference between the interest you would have been charged if the fixed-rate loan had run its full term and the interest you are set to pay on the new variable-rate loan. Since borrowers usually switch to a variable rate when rates are falling, this arrangement means most are hit with these break costs.

Of course, if you switch when rates are increasing the lender should owe you money, but as Guthrie of The Mortgage Bureau explains, this rarely happens. “It isn’t fair, but that is how the system operates,” he says, adding that he rarely recommends borrowers to fix more than half of their mortgage. A common and costly trap and so another that reduces your ability to pay off your mortgage as quickly as possible, is to sign up for a mortgage that has deferred establishment fees.

The risk of this happening is greatest when you opt for a lender that waives application fees — about 20% of these lenders impose exit fees for refinancing within three or four years.

Not only is this an unwelcome cost, the fact that it exists can prompt you to stick with a loan with an unreasonably high interest rate.

Small costs add up

Another mistake is to sign up for a loan where additional payments don’t reduce the loan amount immediately. Instead, they’re first used to pay any accrued interest with only the remainder reducing the loan amount. This means you pay more interest than you should, and while small, it adds up. Thankfully this trap isn’t so common.

It’s also important not to put excessive trust in mortgage brokers. While some add genuine value, you need to choose wisely, otherwise you could not only end up with the wrong loan, but paying the broker for the privilege.

Make sure the broker is an accredited member of the Mortgage Industry Association of Australia. Then check how many lenders they have access to. A good broker should be able to offer you loans from all the main lenders. The broker should also explain how they are being paid. Ideally the fee should be paid by the lender, and should be the same irrespective of which loan is recommended.

It is rarely sensible to pay a broker or mortgage manager for advice on how to cut the cost of your mortgage. If a broker asks you for payment, go elsewhere. A good broker will provide this advice as part of the standard service.

Finally, don’t assume that the lender will calculate your repayments correctly. Mistakes happen, so check your loan statements thoroughly.

4. Consider a salary transaction mortgage

Use your pay packet to slash the amount on which you’re charged interest. Whether you are about to take out a mortgage or are already repaying one, it is worth checking out whether it has one relatively new facility — often referred to as a “salary transaction loan” — will help you to pay off your debt quicker.

The great thing about these loans is that on pay day, your entire salary goes on to the mortgage and in the process, immediately reduces the amount on which you are charged interest.

Obviously you still need to pay for ongoing expenses. To cover these, the account provides you with a credit card that has up to 55 days free credit. You can then use this to cover all your expenses, while making sure you draw down on your account to pay off your credit card within the interest-free period.

Maintain discipline

Hopefully, you will have managed your money well, so that after repaying your expenses there is still some of your salary left in the account, resulting in an ongoing reduction in your mortgage.

If all goes to plan, this process will be repeated each pay day, resulting in a significant reduction in the amount of home loan interest you pay. But as usual, there are traps. One is that these loans rarely carry an interest-rate discount, so you will need to try and negotiate one. You may be able to do so if you are a good credit risk and are borrowing a relatively large amount but, in general, these loans are more expensive than a standard basic home loan.

Guthrie says the other trap is the risk that you will use your credit card carelessly and end up spending more than your salary. If you think you lack the discipline to avoid this trap, then a salary transaction loan isn’t for you. Instead, he says, you should arrange to have your salary credited directly to your standard mortgage account, with the main proviso being that it has a facility that allows you to redraw against your loan free of charge.

By adopting this strategy you cut the amount of mortgage interest you have to pay while still having access to your money. Alternatively look for a mortgage with an offset account. The benefits are much the same as a loan with redraw. An offset account is a savings account where interest earned (the same as what’s charged on the loan) is offset daily against the loan amount (see previous tip).

5. Check out reward loans

Add-ons and rewards sound great, but they may not suit your circumstances. Competition among lenders has generated a diverse line-up of loans that incorporate special add-ons or rewards aimed at winning your business. The rewards on offer include discounts on many of the lender’s financial products, free holidays and cut-price petrol.

Depending on your situation, these rewards can deliver genuine savings and thus boost your ability to repay your mortgage quicker. However, Willink of Cannex stresses it’s important to approach these loans with care. “It’s crucial to make sure the total loan package delivers genuine, not just illusory, savings.”

The main risk is being so attracted by the rewards that you forget to check out the other features of the mortgage. It’s no good getting a supposedly free holiday if it comes at a cost of taking out a loan that doesn’t suit your needs or has a high annual fee.

High ongoing fees are the main drawback of the various packaged loans offered to those borrowing larger amounts. While these loans generally give you discounts on credit cards, insurance, transaction accounts and other financial products, the annual fee often costs between $300 and $400. Unless you can make effective use of the discounts, these loans can end up costing you more, not less, than a standard loan.

*Check with Mortgage supplier regarding current availability of this loan.

By Peter Freeman

For more articles about financing property and money see ninemsn Money