For homeowners looking to maximise household cash flow in 2011, there are ways to manage the mortgage and get ahead.

Set up an offset account
An offset account is a separate deposit account linked to your home loan.  The interest earned on the savings is offset against the interest payable on the home loan. You can pay all income into the savings account and use it for all EFTPOS, cheque, Internet banking and credit transactions. An added benefit is that you avoid paying tax on the interest earned in your saving account as it is used to offset the interest payable on your loan.

Pay extra off your mortgage
As soon as you receive any extra money consider paying it off your mortgage. A tax refund, work bonus or pay rise can all be put towards lowering the balance of your loan’s principal and significantly reduce your interest payments and the life of your loan. If you really need the money at a later date, your additional payments are generally still available as redraw. Visit our extra repayments calculator.

Increase your cash flow
If your budget is already stretched, you could consider ways to increase your income.  Rent out the spare room, take a second job or look at ways to cut back on unnecessary expenditures. Another strategy is to put a tenant in your home and rent a more modest property. That way your tenant is paying the mortgage and your home loan becomes a tax deductible investment loan, although you should talk with both your accountant and mortgage adviser about this strategy.

Draw up a budget and save
A budget gives you a framework to see clearly what you’re spending and to plan for the expenses.

If you keep all your receipts for one month you can get an idea of how your income is being spent. Then decide which are non-essentials and cut them out of your budget. This could then free up a considerable amount which you can use to pay off your debts. Visit our online budget tool.

Refinance and consolidate your debts
Servicing a large amount of personal debt can be a strain on the household finances. Mortgage repayments can often be more easily managed when personal and credit card debt is reduced. Paying off the full balance on your credit cards each month is a good strategy to avoid paying the high interest rate charges.

Interest-only loans
This is a useful short-term strategy to reduce the repayment amount on your mortgage. The borrower pays interest-only, instead of interest plus principal, with the option to pay extra at any time. It’s important to try to pay more than the required minimum whenever you can on your home loan, but interest-only repayments allow you to free up cash that you can use to service other debts when necessary.

For more ideas or information, talk to a mortgage adviser. Visit Smartline’s website and talk to an adviser about your options.

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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.