When was the last time you looked at your home loan? It might be time for a spring clean…
Do you know what the interest rate on your home loan is? Many home loan customers have no idea – but with the news that the Reserve Bank of Australia has kept the rate on hold at two percent, there’s bound to be more intense competition in the mortgage market, and there’s no better time to shop around.
If the mere thought of navigating the interest rates, break costs, fees and all the tricky fine print (and whatever is buried deep within it) makes you break out into a cold sweat, then rest assured - it’s not as hard as you think.
Here, we look at five reasons you should stop putting off refinancing your home loan.
Myth one: You should only change when your situation has changed
A change of circumstances is often what sparks us into action when it comes to finding a better deal. It might be that you need access to funds for a home renovation project, education costs or a new baby on the way. Perhaps you’re buying, building, selling, or retiring.
You don’t have to wait for a major life change to investigate a better deal. Refinancing can be a smart way to manage your money. You may want to consolidate your debts, such as credit cards, by rolling them into your home loan, or take advantage of the interest rate by switching to a fixed loan. Refinancing your home loan may even offer potential tax benefits - if you refinance to access equity in your home to invest in property, shares or other wealth building opportunities. Or, you may just want a better deal with features that suit your circumstances.
Myth 2: I’ve been with my bank for years so I should stay where I am
Lenders can move their variable rates at any time – and all the different structures and fees means how they compare to other lenders can vary greatly.
A loan that was competitive a few years ago might not be as competitive today. So ideally, you should be reviewing your loan every two years to ensure that your rate is still competitive and getting the best possible deal.
Myth 3: Refinancing or switching mortgages is confusing
It doesn’t need to be – especially when you look at the comparison rate on loan products to work out the true borrowing cost, including fees and charges. There are plenty of online comparison calculators that can help with this. But just because a lender has the lowest interest rate, doesn’t mean you’re getting the best deal. Remember, the best loan is the one that suits your financial goals and circumstances.
The first thing you should do is check your current fees and charges associated with your loan then compare, taking into consideration a comparison rate over the loan term, whether hold deposits can offset your loan, break costs for fixed rate loans, lenders criteria and if there are any limitations to the loan.
Next, consider your goals – is it flexibility, cash flow, or debt consolidation you're after?
Myth 4: I don’t have enough time
Ok, so you know you should shop round for a better deal. But it feels like such a long and arduous process, it quickly falls to the bottom of your to do list.
Consider this – the cash rate is resting at a record low of two per cent which means that lenders are rolling out some of the best deals in living memory, but there’s no guarantee of how long it will stay like this. There is no better time to start comparing – just a few hours work now could save you thousands in the future.
Myth 5: it’s not a big enough change to make a difference
Even a small reduction in your interest rate can equate to big savings off the life of the loan. You could also restructure your loan to save on your regular repayments or work out ways to reduce the term of your loan.
Consider this - if you had a $500,000 mortgage and reduced the interest rate by just one percent, over 35 years you could save $112,000 on interest repayments.
Many loans now come with features such as flexible repayments, offset accounts, account splitting and redraw facilities.
When was the last time you looked at your loan? Let us know by commenting below!