Have you had a home loan health check?
The benefits of a home loan health check
If you’ve been making mortgage repayments for a while, chances are that making your repayments has become second nature. Since a lot of borrowers fall into that routine, they don’t think to revisit their home loans.
A lot can happen to your finances within the usual 30-year term. The best home loan deal you could get a few years ago may not suit your needs today. To make sure your mortgage still works for you, it may be a good idea to do a home loan health check.
What is a home loan health check?
A home loan health check is when you review your current mortgage to see if it’s still right for you. Think of it as a doctor’s checkup, but for your home loan. You take a look at your home loan’s vitals like the interest rate, loan features, and repayment frequencies, making sure they’re in line with your current financial and property goals.
Doing a mortgage health check annually or even just every few years could help reduce total mortgage costs. There can be smaller benefits too, like switching to a loan with a better customer service team, easier online management, or maybe you could find a loan with better features that suit your financial habits.
What parts of your home loan do you need to check?
A mortgage health check can be done by looking at your home loan online, reading some of your documents, or speaking with a lending specialist. To do a home loan health check, prioritise looking into the following:
Home loan interest rate
Evaluate your loan’s interest rate, as this will likely make the biggest difference to your home loan health. If your mortgage repayments are causing you stress, you may be able to help alleviate this by switching to a loan with a lower interest rate.
There are times when mortgage rates fall years after you’ve taken out your current home loan. When this happens, it’s would be worthwhile to review your home loan and see whether you could get a better rate by either negotiating with your current lender, or switching to a new lending. If you’re considering switching to a new lender, make sure to check it’s worth it financially given there will likely be fees for refinancing.
Fixed vs variable rate
Fixed rate home loans have generally similar rates to variable home loans, however in some cases fixed loans can be cheaper. In most cases, when a fixed loan term ends, the interest rate reverts to the lender’s standard variable rate, which can lead to a large increase in repayments.
If you know your fixed term is coming to an end, consider changing to a lower variable rate home loan. Be mindful of the expensive break costs you could incur. If you’re still on a fixed term loan when refinancing, a fixed-rate break cost can also apply.
Repayment amount and frequency
Is your repayment amount too much, too little, or just right? Look at your finances and consider whether changing your repayment amount and frequency would better suit your current financial situation. A bigger repayment amount may help pay off your loan faster. The same goes for increasing your repayment frequency from monthly to fortnightly or weekly.
On the flipside, may be too much for your current situation, if you are paying more than the minimum required amount. Scaling down your repayments back to the minimum amount required, or to a more suitable amount, can help you manage your loan better.
It's also the time to examine if making extra repayments on the loan or making larger lump sum contributions is feasible. Doing so may help you save more on your loan and pay it off more quickly. Be sure to chat with your lender before you adjust your payments, as there can be penalties for paying your loan off too early.
Home loan fees
Ongoing home loan fees can add hundreds to the overall cost each year, like the annual and monthly service fees, redraw and offset facility fees, and late payment fees. If you want to refinance to a new lender that doesn’t charge any ongoing fees, standard upfront fees will likely apply, like application and valuation fees, conveyancing fees and registration fees, and you could also be charged discharge fees and early exit fees if you pay the loan off early.
Home loan features
Your current home loan might lack some of the more attractive mortgage features like offset or redraw facilities, extra and lump sum repayments, top-ups and more. These features may help you lower total interest costs and make your home loan more manageable.
You could also find a loan that offers these features, but more suitable. For example, one loan might offer unlimited extra repayments and fee-free redraws, while your current loan might charge fees and limit the number of extra repayments you can make. If you already have these features but don’t find them useful, you could switch to a cheaper loan that doesn't include them.
Property value
If your property's value has increased, then you’ll have more equity in your home and can get more when you sell, but if the property has fallen in value, then refinancing could be a bit trickier. That’s because your loan-to-value ratio (LVR) might have dropped to a point where you no longer have enough equity for a 20% deposit.
You can conduct a property valuation to find out what your property is worth, or you can get a quick estimate with a free property report online. This is also important if you want to renovate your home.
Can you do a home loan health check yourself?
Yes, you can do a mortgage health check yourself by analysing your finances carefully. However, it’s always safest to get advice from a finance expert who can review your situation with a more critical eye.
You can also speak with a lending specialist and provide them with a quick rundown of your home loan, personal finances, current property, and what you’re looking for in a home loan, so they can assess your home loan for you.
It would be wise to consult your current lender if you have any questions about your loan and other finance options.
Should you refinance your home loan?
After doing a home loan health check, you may find that your current mortgage no longer suits your needs as it did before. If this happens, you may consider refinancing your home loan.
Life can get in the way of the perfect home loan. If you’ve undergone any major life changes, such as having a child, getting married or divorced, getting a new job or losing your job, it could be helpful to consider your loan refinance options.
If you want to do a renovation, refinancing your home loan may allow you to access equity in your home. Some borrowers may use the equity in their home to secure finance for a construction loan or line of credit to fund the renovation, if they have enough equity for a 20% deposit.
You can also consider using this equity as a deposit on a new property if you’re thinking about selling and moving, or if you want to add an investment property to your portfolio.
Refinance with loans.com.au
Our friendly lending specialists can help you complete a home loan health check if you’d like to learn more. At loans.com.au, we have several home loan options with competitive interest rates, no ongoing fees, useful features, and easy online management.
Speak to one of our expert lending specialists today to begin your home loan health check and check out our range of home loans.
Find out in under 2 minutes if you qualify for one of our low rate home loans.
About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
