Throughout the life of a mortgage people’s situations do change.
As a result is it is always wise to get a regular ‘health check’ on your existing mortgage to see it is still relevant to your circumstances and up to date compared with other products on the market.
1. Do I need the features I have?
You secured your home loan with all the bells and whistles, from a line of credit to a cheque book feature. Years into the loan, you should ask yourself: Do I use all of these features?
Having a variety a features may have given you peace of mind at the time you took out the loan, but it may dawn on you that some or even none have been really utlised. You may pay your loan by direct debit and have never written a cheque over the entire time you have held the loan.
These features can come at a premium price so it is well worth asking just how necessary they are. To covert to another product with your existing lender can cost from zero to around $150.
2. How has my life changed?
Have your personal circumstances changed considerably from the time you originally took out the loan? You may have started a family which has increased your day to day living expenses and made repayments more difficult. Conversely, you may have kick started a new, better paying career or been promoted in your existing company. You may have been a self-employed contractor who is now in a full time position, which is seen more favorably by lenders.
Whatever your circumstances were in the beginning, they probably determined the loan product you have. How suitable is your loan now, and are you still paying more for a life you no longer lead?
Your lender should have products that not only suit your current needs but are adaptable to suit your changing needs. Investment purchases, refinances and increases should be a simple process with your loan.
3. Have I had an updated valuation?
If you had maintained your existing loan for several years it would be in your best interests to get an updated valuation because over the years there has been some significant capital growth across Australia.
Up to 2004, across the board there were significant increases in areas across the country so it might be wise to get an updated valuation and see if you have equity there and how much. You work very hard to earn your money and to fulfill the obligations of your loan. Why not see if you can extract some of that equity and have it working smarter for you? Equity in your home can be used for household renovations, investments and other lifestyle considerations such as an overseas holiday.
4. Am I happy with my existing service?
Over the term of your loan, has the service provided by your lender all that you hoped it would be? Have their response times and their quality of their response been satisfactory or are you ultimately disappointed? How committed have they been to addressing any issues that you have had over the term of your loan, and have they delivered what you consider to be a genuine effort to find a solution to those issues?
Your home loan is the biggest investment you are likely to make. Your relationship with your lender should should reflect that commitment and be a mutually beneficial one. If it isn’t you need to start asking questions.
5. What’s the frequency of my repayments?
Your mortgage repayments may be paid on a monthly basis. Is this in sync with the frequency you are paid your wage? You may be paid weekly or fortnightly. If this is the case you should be making your mortgage repayments weekly or fortnightly.
The benefit is that interest on your loan is calculated on a daily reducible balance which means interest is calculated every day. The more money you have parked for that particular period the lower your balance.
Calculations are run at the end of the month when interest is debited to your account so therefore you pay less interest if frequent repayments enter your loan account.
6. What’s the cost of redraws on my mortgage?
Does a redraw on your current mortgage cost you? Some lenders allow a redraw facility at no cost, some don’t and charge you fees for doing so. Make sure you have a product that allows unlimited withdrawals at no cost.
Some lenders charge in excess of $20 per redraw, so if you are doing 4 or 5 of them a month, this can represent .025 to 0.5 per cent on top of your actual interest rate.
A redraw facility allows you to make additional repayments on your mortgage, and access to the additional repayments if you need to so it is a handy feature to have. Find out if you are paying for the privilege.
7. What loans are on offer?
New home loans constantly become available as lender’s work hard to attract borrowers in every climate. Loan products have changed markedly over the past 20 years; originally it was a monthly repayment from the actual bank’s savings account which you were forced to open. Things progressed to fortnightly, and then weekly.
The mortgage industry matures and evolves constantly which means lenders are often forced to play ‘catch up’ with some of the new products being introduced. This competitive market place can only be good for the borrower.
It could be in your best interests to refinance with another lender, but review your own lender’s products as well. They may not consider it an obligation to alert you to a cheaper or more suitable product they’ve introduced.
Spend an hour of your time to look around on a regular basis. That hour could save you thousands.
8. Is my interest rate competitive?
Interest rate alone is not the only consideration for choosing a loan and invariably the more flexible the loan, the higher the interest you will pay. Features must be a priority consideration but it makes sense to check that you’re not paying more for a product than you should be. Always compare loan products with the same features when looking for the best interest rate. There is always competition between lenders to offer the lowest rate so you may not have the cheapest rate anymore. Before you convert to a lower rate, make sure break costs don’t negate the supposed financial benefits. In some cases, you’ll be better off doing nothing.
9. Does my loan contain ongoing fees?
When comparing the cost of different loans, don't just look at the interest rate, look at the 'total cost of borrowing'. Ongoing fees can include account keeping fees, fees for taking money back out of the account, monthly fees and annual review fees. Some lenders may claim to give you a discount on the interest rate while charging a monthly fee for some fairly standard privileges to offset giving you that rate reduction.
Weigh up the effect of any ongoing costs. Ongoing monthly and annual fees can affect the true cost of your loan.
10. Am I penalised for extra mortgage repayments?
Sometimes traditional fixed rate loans aren’t very flexible and there can be penalties involved if you make substantial lump sum repayments. Other products let you to make additional repayments, allowing you to repay your mortgage before the end of its term. Off-set accounts, lines of credit and a redraw facility can all help you pay off your loan sooner. Some lenders now have access to a product which can offer you the best of both worlds. That is fixing your loan whilst maintaining the benefits of a flexible product. These can be great features to have if you come into some extra cash and can effectively pay off your home sooner.