If you've been making mortgage repayments for a while, chances are you're in the swing of the routine.
However, undertaking a mortgage health check could benefit your financial position. There are a few steps when it comes to completing a mortgage health check, but it's worth the time.
A home loan health check is essentially like a doctor’s checkup for your home loan: You take a look at lots of different things, from the interest rate to your repayment type, to what your current property goals are, to assess whether the loan you have is still the right one for you.
Doing a home loan health check annually or even just every few years could save you tens of thousands - or even hundreds of thousands - on the total cost of your mortgage. That’s arguably the main benefit, as the savings you can make can also help you get on top of your other finances as well, improving your overall financial health.
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.
Here’s how you can do a home loan health check yourself.
A home loan health check can be done in as little as 20 minutes or so by looking at your home loan online, reading some of your documents, or by speaking to a lending specialist. To do a home loan health check, prioritise looking into the following things:
First, it's wise to evaluate your home loan interest rate, as this will arguably make the biggest difference to your home loan health. If your mortgage repayments are causing you stress, you can alleviate this by switching to a loan with a lower interest rate, such as the loans offered by loans.com.au.
If you’re comfortable with your repayments, you can still benefit from switching to a lower-rate loan…
It's no secret that increasing your repayments can help pay off your loan faster. Although reducing your repayments can give you more cash in the short term, paying more into your home loan each month can save much, much more over the life of your mortgage.
If, for example, the minimum interest rate on your loan has decreased lately, it could be worth keeping your repayments the same if you’re comfortable with them, as you could end up saving tens of thousands of dollars overall. This also applies to making extra repayments into the loan, making larger lump sum contributions, or by paying weekly or fortnightly instead of monthly.
Be sure to chat with your lender before you adjust your payments as there can be penalties for paying your loan off too early.
You could also be overpaying for your home loan in terms of fees. Ongoing home loan fees can add hundreds to the overall cost each year, like the annual and monthly service fees, redraw and offset fees, and late payment fees. If you want to move to a new loan, standard upfront fees can 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.
loans.com.au has a number of home loans with low or no fees, helping you save hundreds each year.
Fixed home loans tend to have lower interest rates than variable loans. But 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’ve forgotten how long your initial fixed-term was, find out. If you know your fixed-term is coming to an end, then you should make arrangements to change your repayments to a lower variable rate, being 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, which could easily be in excess of $10,000.
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, you should definitely review your current home loan to see if there’s anything you need to change. Being honest with your lender about any changes is a good way to ensure you get the right support.
If your current home loan is basic, it might lack some of the more attractive mortgage features like offset-redraw facilities, extra and lump sum repayments, top-ups and more. These can help you save a lot of money.
If you already have these features, you could switch to a cheaper loan that doesn't have them, or you could also find a loan that offers these features but better. 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 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…
If you want to do a renovation, whether it’s small like new tiles or big like a pool or new kitchen, a good way to pay for it is with the equity in your home. This is worth calculating, as you can more easily secure finance for a construction loan or line of credit to fund the renovation if you have enough equity for a 20% deposit.
You can also use this equity as a deposit on a new property if you’re considering selling and moving, or if you want to add an investment property to your portfolio.
While a mortgage health check requires you to carefully analyse your finances - just as a doctor would carefully analyse a person's symptoms - you don’t have to do this all yourself. By providing a lending specialist with the following information, they can assess your home loan for you:
Your most recent home loan statements
Your property’s address
Copies of your recent bills and bank statements
And what you’re looking for in a loan (lower repayments, better features, fixed or variable repayments and so on)
Whatever your questions are, it's a wise idea to consult your lender.
loans.com.au’s lending specialists can help you complete a home loan health check. loans.com.au has a number of home loans with low interest rates, low fees, useful features and easy online management which could be perfect for you. So speak to one of our friendly, expert lending specialists today to begin your home loan health check, and check out some of our ultra-competitive home loans with the lowest rates.