KEY TAKEAWAY: You should review your home loan every 12 months or when your financial circumstances change, when there is a change in interest rates, or when the fixed period is coming to an end.
Why you should review your home loan
We constantly review other financial commitments, such as health insurance and other service providers such as internet and cable, but we tend to ignore the biggest financial decision we’ll ever make in our lives that can potentially save us thousands of dollars. It is so easy to get it right and just as easy to get it completely wrong.
It is recommended that you review your mortgage every one-two years, or when your financial circumstances change. If you’re working towards being mortgage-free, then you can potentially save thousands of dollars by looking at your current home loan, and it costs you nothing but just a little bit of your time.
When to review your home loan
When your financial circumstances change: Marriage, children, changing jobs or even a salary increase can all affect your ability to maintain the current rate at which you were making repayments to your home loan.
When there is a change in interest rates: By staying in the know, you will be informed on how competitive your current home loan is.
When the fixed period is coming to an end: When the fixed period ends, the interest rate becomes a standard variable rate. This will change your payment rates.
How to review your home loan
1. Have an ongoing relationship with your mortgage broker
Visiting a mortgage broker isn’t something you do just to get your loan. When you don’t have enough time to compare the market’s rates, having a good relationship with your mortgage broker can be extremely valuable. Your mortgage broker will assess your home loan at regular intervals to see where you sit, and whether your current setup is still the most appropriate. They can do the work for you to ensure you are paying the best rates by comparing home loans from different lenders.
Furthermore, a mortgage broker can review your:
Rates: They can check to see where experts think interest rates will end up each year to help you decide whether to switch home loans to a product with a lower rate or whether to get a fixed home loan so as to protect yourself from rising interest rates.
Fees: Get your mortgage broker to see what other lenders are offering. They will be able to offer advice on whether it is worth switching, as there may be discharge fees to pay if you decide to switch.
Features: The features on your home loan when you first bought it may have been relevant then, but not so much anymore. This is why it is important to take a closer look at your loan. Your mortgage broker can sit with you to make a checklist of all the features on your current loan that you may not need, but you’re still paying for.
2. Set up an offset account
Refinancing your home loan might mean considering linking an offset account. This can help you make significant interest savings. Similar to a normal bank account, (an offset account balance) helps to reduce the amount of interest you pay.
For example, if you have a $350,000 home loan, and $20,000 in a linked offset account, you only incur interest on the gross debt of $330,000. The interest is only charged on the difference.
Setting up an offset account is easy. peak with your bank or mortgage broker and they help you create and link an offset account for you to use immediately.
3. Consider additional repayment flexibility
Some home loans will restrict your ability to make any extra payments on the principle amount. Changing to a more flexible home loan, which has no penalties for making extra repayments can help you pay off your mortgage faster and potentially save you more money in the long run.
Your mortgage broker can help you calculate your additional repayment capacity.
You can always chat to a mortgage broker and find out how less income needed to pay out your mortgage can mean more money for other areas of your life.