Owning a home is one of the most significant financial commitments you’ll make in your lifetime. It’s easy to set your mortgage and forget about it, but regularly reviewing your home loan is essential for ensuring that it still suits your financial situation and goals.
In fact, a well-maintained home loan can save you thousands of dollars over the years, especially as interest rates fluctuate, or your financial circumstances change.
Whether you’re looking at disability pension home loans or another type of mortgage, reviewing your home loan periodically is key to maintaining your financial health.
In this article, we’ll explain why regularly reviewing your home loan is important and how you can make the most of this practice.
Why Should You Review Your Home Loan?
Mortgage terms can span many years, and over time, your financial situation, goals, and the market conditions will likely change.
If you don’t review your home loan regularly, you could miss out on opportunities to lower your interest rate, reduce your repayments, or even pay off your loan sooner.
Changing Interest Rates
Interest rates have a direct impact on your monthly repayments. If you have a variable-rate loan, your interest rate is likely to change as the Reserve Bank of Australia (RBA) adjusts the official cash rate. Even if you have a fixed-rate mortgage, your rate will eventually come up for renewal.
Interest Rate Increases
A rise in interest rates can increase your repayments. This could strain your budget, especially if you have a large loan or if your financial situation has changed.
Interest Rate Decreases
On the other hand, a drop in interest rates could lower your repayments. If you’re locked into a fixed-rate loan, you may miss out on these savings if you don’t review your home loan.
Changes in Your Financial Situation
Your financial circumstances can evolve over time, and these changes may require adjustments to your mortgage.
Increase in Income
If your income has increased, you may want to consider making extra repayments or shortening your loan term. This could reduce the overall interest you pay on your mortgage.
Decrease in Income
If your income has decreased or you’re facing financial hardship, reviewing your loan could help you find ways to reduce your repayments, such as switching to a loan with a lower interest rate or extending the loan term.
Regularly reviewing your home loan ensures that it still aligns with your current financial situation and allows you to make adjustments as needed.
How Often Should You Review Your Home Loan?
There’s no one-size-fits-all answer to how often you should review your home loan. However, there are key moments when a review is particularly important:
Annually
Reviewing your home loan annually is a good habit to get into. Even if your financial situation hasn’t changed dramatically, annual reviews allow you to stay on top of interest rate changes and ensure your loan is still the most competitive option available.
Interest Rate Changes
Mortgage rates can fluctuate from year to year, so it’s important to assess whether your current lender is offering competitive rates.
Lender Promotions
Many lenders offer special promotions, such as discounted rates or cashback offers, that you might be eligible for if you switch loans.
When Interest Rates Change
As mentioned, interest rates have a significant impact on your mortgage repayments. If the Reserve Bank changes the official cash rate, you should review your loan to ensure you’re still getting the best deal.
Variable Rates
If you have a variable-rate loan, your repayments may increase or decrease with the cash rate. It’s wise to check with your lender to see if there are any better options available.
Fixed Rates
If you have a fixed-rate mortgage, the end of your fixed period is an excellent time to review your loan. This is when your loan will typically revert to a variable rate, which could result in higher repayments.
Major Life Events
Life events such as marriage, having children, or a change in employment status can significantly impact your finances. These moments are ideal for reviewing your home loan and ensuring that it still aligns with your needs.
Marriage or Family Expansion
If your household income has increased or you have more dependents, you might want to adjust your loan or consider making extra repayments.
Job Loss or Reduced Income
If your income has been affected, reviewing your loan can help you find ways to lower repayments, such as extending the loan term or refinancing to a lower interest rate.
Benefits of Regularly Reviewing Your Home Loan
Regular home loan reviews offer a number of benefits that can lead to significant financial savings and greater financial security.
1. Lower Interest Rates
One of the most common reasons for reviewing your home loan is to secure a lower interest rate. Over time, lenders may offer better rates to new customers, but you may be paying a higher rate if you’ve been with the same lender for a while.
Negotiation
By reviewing your loan, you can negotiate with your lender for a better rate. If you’re unable to get a better deal with your current lender, refinancing to a new one may be an option.
Market Conditions
If interest rates have dropped since you took out your mortgage, reviewing your loan can help you take advantage of those lower rates.
2. Access to Better Loan Features
Mortgage products evolve over time, and new features may become available that suit your needs better than your current loan. For example, you might want to access a loan that allows more flexibility, such as the ability to make extra repayments or access a redraw facility.
Extra Repayments
If your loan doesn’t allow you to make extra repayments or pay off the principal early, reviewing your home loan could give you access to more flexible terms.
Offset Accounts
An offset account is a feature that allows you to reduce the interest charged on your loan by offsetting the balance in a separate transaction account. Reviewing your loan could help you find products with this feature if it’s available.
3. Better Loan Terms and Conditions
Mortgage products can vary significantly, and lenders often introduce new loan options that may suit your financial goals better than your current loan.
Shorter Loan Term
If your financial situation allows for higher repayments, you might want to consider shortening your loan term to pay off your mortgage quicker and save on interest.
Debt Consolidation
If you have other debts, such as personal loans or credit cards, consolidating them into your mortgage might help simplify your finances and reduce your overall interest payments.
4. Reduce Monthly Repayments
If you’re struggling to meet your monthly repayments, reviewing your loan can help you find ways to reduce them. Extending the loan term or refinancing to a loan with a lower interest rate could provide some much-needed relief.
Refinancing Options
Refinancing to a more affordable loan can lower your repayments and help you manage your finances better.
Extended Loan Term
Increasing the loan term can reduce your monthly repayments, although it may result in higher overall interest payments.
How to Review Your Home Loan
Reviewing your home loan involves assessing several factors and determining whether your current mortgage still meets your financial needs.
1. Check Your Current Interest Rate
The first step in reviewing your home loan is to check your current interest rate. If you’re on a variable rate, this can change frequently, so compare it to current market rates to see if you’re paying more than you should be.
2. Compare Loan Products
If you’ve been with your lender for a while, it’s worth comparing loan products from different lenders. You may find that a different loan type, such as a fixed-rate loan or one with more flexible features, suits your current situation better.
3. Consider Your Future Financial Goals
Think about your long-term financial goals when reviewing your home loan. Do you want to pay off your mortgage faster? Would you prefer to reduce your monthly repayments for more flexibility in your budget? Understanding your goals will help you choose the right loan features and repayment structure.
4. Speak to Your Lender or a Mortgage Broker
Once you’ve reviewed your home loan, it’s a good idea to speak with your lender or a mortgage broker. They can help you understand your options, negotiate better terms, or advise you on refinancing to a more suitable loan product.
Conclusion
Regularly reviewing your home loan is essential to ensuring that you’re getting the best deal and that your mortgage still suits your financial needs.
By checking your interest rate, comparing loan products, and considering your long-term goals, you can save money, reduce your repayments, and even pay off your mortgage sooner.
Make it a habit to review your home loan, and you’ll be better prepared to manage your home loan and overall financial health.
Frequently Asked Questions
How often should I review my home loan?
It’s recommended to review your home loan at least once a year. Additionally, you should review it if your financial circumstances change, when interest rates fluctuate, or when you’re approaching the end of a fixed-rate term.
Can I negotiate a lower interest rate with my current lender?
Yes, you can negotiate with your current lender for a better interest rate, especially if you’ve been with them for a while. If they’re unwilling to offer a better deal, refinancing to a different lender may be an option.
What should I do if I can’t afford my mortgage repayments?
If you’re struggling with your mortgage repayments, review your loan to see if you can refinance to a more affordable loan. You may also want to extend your loan term or consider temporarily switching to an interest-only loan to reduce repayments.