Why You Should Review Your Home Loan Annually?
Getting a home loan in Australia is relatively tough with all the changes forced onto the banks by our Government. This is probably the reason why many of those who successfully get approved become lax once they receive the funds. They believe that as long as they pay their mortgage on time, they’ll do just fine.
But it is not enough to simply pay your dues before the deadline. You should also review your existing home loan annually or on a regular basis to get the most benefit.
Review Your Home Loan Regularly
1. To get the best new deals on the market
The home loan is a competitive market with lenders constantly offering great deals to attract and retain consumers. The best home loan deal that you’ve grabbed out last year may not be the best deal today. Some lenders also offer great interest rate discounts to their new clients but do not extend the same offer to their existing ones, holding you to a loan structure that does not decrease your financial burden.
If you’re not locked in a fixed-term or discount rate deal with an early repayment charge, it may be wise to refinance your home loan (remortgage) to take advantage of a better deal.
This new, better home loan deal can help you:
- Pay lower interest charges and save money
- Lower your monthly repayments
- Pay off your loan faster
- Reduce service fee and other associated loan charges
- Consolidate personal loans
2. To ensure that your home loan and your needs remain well-aligned
Your personal circumstances and needs change throughout the years. A home loan that you’ve taken out one year ago to buy a studio apartment may not be suitable now that you’re married and starting to raise a family.
By reviewing the terms of your loan and comparing it with your current situation, you can assess whether or not your mortgage is structured in the best possible way to suit your present needs.
3. To keep track of how much you owe
Reviewing your home loan structure and rates at least annually can give you a better idea of your loan commitment, including:
- How much of the total cost of the loan have you already repaid?
- How many repayments do you still need to make?
- How much equity do you have?
The answers to these questions can help you in your decision-making:
- If you refinance your loan after making regular repayments for one or several years, would it help you save money or would it only delay your mortgage payoff?
- Would it cost you more to get a new home loan?
- Is refinancing worth it if you pay for the loan appraisal, application and any other upfront fees before approval, plus the possible risk of rejection?
Even if you don’t intend to remortgage, reviewing your home loan structure and tracking the repayments that you’ve made can motivate you to continue making timely payments and being a responsible borrower. You can also effectively budget your money, especially if your income has changed since the day you’ve taken out the loan.
Why Do the Review Every Year?
It is ideal to review your home loan at least once a year, when enough time has passed for significant changes in the home loan market to take place.
One year after you’ve gotten a home financing, it is like that there are new lenders in the market that offer competitive deals to attract many customers and make a mark in the industry. Meanwhile, existing lenders release new loan products or offer special offers to retain customers and beat their competitors.
If you are always in the loop on the changing market, you would know when is the best time to remortgage with a super deal.
Other Great Times to Review Your Home Loan
Apart from doing an annual home loan review, it is also smart to review your mortgage when
1. The interest rates change
Mortgage rates change according to government financial policies and economic factors, like inflation, economic growth as indicated by gross domestic product (GDP) and employment rate, monetary policy, bond market, and housing market conditions.
All these factors are tied to the law of supply and demand--When the demand for mortgages decline, the interest rates move downward.
2. Your fixed-rate period is about to end
The fixed-rate period is when your interest rate will not adjust. A home loan can be in a fixed-rate period for one, three, or five years. After this, the interest rate will revert to the standard variable rate based on current market rates and your repayments are most likely going to change.
Before entering into another fixed-rate contract, review the structure of your home loan and compare it with the interest rates that are currently on offer. These new rates may be lower compared to the variable rate that your loan is reverting to.
“You could lose out to many better deals that are available in the market if you do nothing and just let your mortgage rates change.”
3. Your lifestyle and financial circumstances change
A lot can happen in a year--You can receive a pay rise or be fired from your job, get married or be involved in a stressful divorce process, have a baby or get inflicted with a deadly and expensive disease. These changes in your life and financial circumstance may no longer support your old home loan terms.
Giving your home loan a health check annually, ideally at the start of the year, can help identify whether or not it is still the right product for you.
4. You have plenty of personal loans to settle
If you find a new home loan structure that’s more affordable than your current one, you can consolidate all your active personal loans and credit card debts into a home loan by refinancing. This will help you save money on interest, especially if you pay off your new loan early. You can also focus on just one loan obligation to repay.
What Are the Things You Should Watch Out For?
1. Schedule your home loan review
Scheduling your home loan review at the start of the year and setting up a reminder for it can help you manage and spend time on the task. If you do it before your current fixed deal ends, you can easily compare your current loan against other offers in the market and identify which deal is the most favourable for your situation. This will help you save hundreds of dollars.
2. Examine the remortgage costs
Refinancing your home loan may be costly. Make sure to identify all the fees that come with a promising new deal before making the switch. COnsider also the costs associated with remortgaging, including:
- early repayment charge and exit fee for your old loan
- valuation, legal and booking or arrangement fees for your new loan
3. Be aware of new regulations
New government regulations could affect your new loan application. Lenders may be legally required to ask you:
- Plenty of documents as proof of income
- Tax returns and accountant-prepared business accounts on top of other necessary documents if you’re self-employed
- Household bills
- Debt repayment records
- Living costs
All these requirements translate into a demanding remortgaging process. You can also get denied.
4. Calculate how much you can save when refinancing
There are plenty of free online mortgage calculators and comparison websites that can help you compute how much you can borrow in a home loan. Each site may give you a different result so it’s smart to use more than one site to get a good estimate.
Positive Lending Solutions is an award-winning broker in Australia that partners with both banks and online lenders to find the best loan rates for clients.