When was the last time you checked out the home loan competition? According to ME Bank's research shows that only 41% of Australians are confident they know enough about loans to have the one for their situation, but that can mean paying too much each month and may not be necessarily the right home loan product. So, it is worth considering what do you need to know before you start comparing home loans? How can you make sure you’re getting a good deal?
Household circumstances are always changing. We get new jobs, have kids, retire or become empty-nesters. Regularly reviewing your home loan can put money in your pocket and reduce financial stress.
Understand your current rate
Knowing your current interest rate is the first step to comparing home loans and getting the best deal. You’ll also need to understand what the different rates mean and other costs involved i.e. discharge fee, package fees, etc.
A variable home loan interest rate fluctuates as the market changes. That’s great if rates drop, but can put pressure on your budget when they go up. An unpredictable mortgage repayment can also be hard to plan for. However, they’re often more flexible, with options to redraw, make extra repayments, or payout early or even offset the balance if you have a sum of savings.
A fixed interest rate is one that locks in current interest rates for a set period, usually 1-5 years. That means no rate increases, so your repayment is always the same, but it also means no rate decreases. After the fixed period ends, you’ll need to either lock in a new fixed-rate or revert to a variable rate.
You can also use a combination – a ‘split’ rate – paying a fixed rate on a portion of your loan and a variable rate on the rest.
Many lenders offer sweeteners for new customers, too. An introductory rate might save you heaps for the first couple of years, allowing you to put money away or repay faster while your mortgage is at its highest. Just make sure you know how much you’ll be up for when the honeymoon ends.
Refinancing is easier than you think
Get in touch with a mortgage broker and don’t be afraid to refinance for a better offer. Technology has made the shift to a new lender much easier. The new bank can deal directly with your current bank to pay out your existing loan and transfer titles and security. You can speed up the process by having your paperwork ready to go, including your current mortgage information, proof of income, and identification.
A mortgage broker will show you how much you could be saving in the long run, while being clear about how your regular repayments will change. Finance Broker consultant can also help choose the best new transactional and offset accounts to suit your unique requirements.
Of course, refinancing comes with its costs, too. Check out what you might be up for, and make sure you’ll be better off in the long run before you switch.
‘Set and forget’ can cost you money!
Bank interest rates are informed by the Reserve Bank of Australia, which sets the ‘cash’ interest rate and reviews it monthly. The current RBA cash rate is at 0.25% (15/07/2020). When the rate changes, lenders can choose to pass on those increases or decreases to their customers.
Over time, your current rate can become totally out of sync with the RBA’s cash rates. A home loan interest rate that’s been fixed for ten years may mean a bigger mortgage payment for you. And, like any product, home loans are always evolving with new markets, new technology, new features and more. Your faithful loan could be looking a little old-fashioned – and that could be costing you money.
Now is the best time to shop around
The current home loan market is highly competitive, with offers to suit every kind of borrower. Home loans are more feature-rich than ever, and current interest rates are historically low. If you’ve been thinking about finding a better deal, don’t put it off any longer.
Every day you wait is money you’re paying in interest. There’s never been a better time to start comparing home loans. What will you do with the money you save?
Start reviewing your latest statement and get in touch with a local Finance/Mortgage Broker to compare home loans and lowest rates to see how much you can save and how quickly you can pay off the loan.
This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice. (The original context was based on ME Bank Blogs at https://www.mebank.com.au/the-feed/don-t-be-that-guy/ (15/07/2020)