When was the last time you checked out the home loan competition? Our 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. So, what do you need to know before you start comparing home loans? How can you make sure you are getting a good deal?
Our 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 will also need to understand what the different rate means. There is a difference in variable and fixed-term interest rates. There are risks involved in each type of interest rates. Your local finance broker will explain to you in detail when assessing your financial needs.
A variable home loan interest rate fluctuates as the market changes. That is 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 on your budgeting as well. However, they are often more flexible, with options to redraw, make extra repayments, or payout early and having an offset account to reduce interest on the loan balance.
A fixed interest rate the rate 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 will need to either lock in a new fixed-rate or revert to a variable rate. That is a great way to review and look for an opportunity to assess a comparison on home loans to make sure you are getting the best deal.
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 will be up for when the honeymoon ends. There are significant breaking costs involved when you decided to break the fixed-term before it expires.
Refinancing is easier than you imagine
Do not be afraid to refinance for a better offer. Technology has made the shift to a new lender much easier and convenient. A finance broker can deal directly with a panel of lenders to find you a better deal and the new lender can payout 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 finance broker will show you how much you could be saving in the long run, while being clear about how your regular repayments will change. Your local finance 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 will 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. 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 is been fixed for ten years may mean a substantial mortgage payment for you. 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 for a better deal
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 have been thinking about finding a better deal, do not put it off any longer.
Every day you wait is money you are paying in interest. There has never been a better time to start comparing home loans. What will you do with the money you save?
Compare your current rate and talk to your local finance broker about stress-free refinancing.
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 content was published in ME Bank shared portal.