No two mortgages will suit the same person. In fact, it’s possible that your own mortgage could become unsuitable for your needs just as time passes. As your life situation changes, so too do your finances, interest rates and priorities. High levels of debt can be a serious issue for anyone vulnerable to serviceability changes.
With the right awareness, your mortgage can help spark growth and stability in your finances.
Maintaining the health of your mortgage means understanding what you need at each stage of your life and how your mortgage connects with that. To figure out if your mortgage is in need of some TLC, you need to ask yourself the following questions.
When did I last review my mortgage?
Regularly reviewing your mortgage can save you money in the long-term by helping you avoid high-interest rates or unnecessary fees. You should, at the very least, review your mortgage:
- When interest rates change. The Reserve Bank of Australia (RBA) reviews the cash rate every month, and any changes are likely to affect the rates your loan provider charges you. That said, the cash rate doesn’t always change. The current rate hasn’t changed since August 2016, however, it’s expected to rise in 2019, so locking in a fixed rate before then would be wise.
- At the end of your current mortgage deal. Promotional mortgage deals often offer much better conditions in the short-term than the long-term. After a promotional or fixed rate period has ended, it’s likely you’ll revert to a higher variable interest rate and would benefit more from refinancing.
- Once a year. As new deals come into the market, it’s possible that better options are right around the corner. If your loan conditions don’t charge an early termination fee, seeking better deals is a great idea.
What features should be included in my home loan?
When looking to change mortgage, or even if you’re on the hunt for your first home loan, you need to know which features will be relevant to your interests.
- Interest rate: A fixed rate loan will accrue interest at one rate for a set number of years. Meanwhile, a variable rate will change with market fluctuations. A variable rate has the potential to save you money when rates are low but isn’t necessarily reliable. If you’re strapped for cash, a fixed loan can give you the stability you need to budget appropriately. Fixing at the start of your mortgage can help you adjust to repayments, however later in your mortgage’s lifespan you might benefit from the flexibility of a variable or split loan.
- Fees: A major factor determining how much you’re spending on your mortgage is your lender’s fees. Look out for deals with lower fees and – provided they offset the possible termination fees of your current lender – make the switch.
- Offset accounts: Many lenders will offer an offset facility, meaning the interest you’re charged will be based on the loan amount minus the balance of your offset account – reducing the cost of your repayments.
- Additional repayments: As you become more comfortable with your repayments and see increases to your income, you might be able to afford to make additional repayments to reduce the term of your loan. Not all lenders will allow this, however – so switching may be necessary.
- Redraw facility: In tough financial times, being able to withdraw additional repayments you’ve made to your mortgage can be a life-saver. A redraw facility can be invaluable to a growing family with fluctuating cash flow.
Have you considered refinancing?
Our Refinancing Guide contains information that will help you to think about why you should refinance, what you will need to consider, if now is the right time and some challenges you may face. It also contains worksheets to help you gain an understanding of your current home loan, and a checklist should you decide refinancing is the right thing for you.
DOWNLOAD OUR REFINANCE GUIDE
There are a lot of things to consider when you’re assessing the health of your mortgage. It pays to ensure your home loan is working for your lifestyle and not the other way around. For financial advice catered to your personal situation, contact one of our advisers today.
What you need to know
This information is provided by Invest Blue Limited (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.