When was the last time you reviewed your home loan? You may find that it is not as competitive any more and it's time for a change.
The RBA has not increased the cash rate since November 2010, but recently interest rates have moved independently for investment loans and some owner occupied loans, particularly with the big 4 banks.
Interest rates are still at record lows, but unless you have kept up with all the recent changes, you may not realise that your home loan is not as competitive as it once was. With strong competition between lenders to attract borrowers, now may be the time to look around and find out what is on offer.
You might find that there are a number of better home loans on the market that could save you significantly. Take a look at our top secrets to finding a better mortgage.
Understand your mortgage
Before you go out and look at other home loans are on the market, you need to have a good understanding of your current home loan.
• Do you know what your current interest rate is?
• Is it a fixed or variable interest rate?
• Do you know what features your home loan has and ongoing fee?
• Are there restrictions around redraw?
• What do you like or dislike about your internet banking?
Starting off knowing what you currently have will put you in a better position to shop around and ask questions of other lenders to ensure that you are getting what you really want.
Create financial and lifestyle goals
You may find that a lot has changed since you first obtained your home loan and your money is not working as hard as it could be.
When researching home loans, think about where you plan to be five, 10 or 20 years down the track.
• Does your current home loan still suit your financial and personal needs?
• Will you be having children?
• Do you have other debts at higher interest rates?
• Do you plan to turn your property into an investment?
• Do you just want to put everything towards your home loan in order to pay it off as quickly as possible?
The answers to these questions will determine the type of home loan that will suit you. If you are able to convey your goals to a lender, they will be able to give you an idea about the best home loan for your needs.
Rethink your home loan features and added benefits
When you know what type of features your current home loan has, you will be able to figure out what features are must-haves and which ones you can leave out. For example, your current home loan could have a number of features you don’t need and you could switch to a loan with less features and a lower interest rate.
On the other side, there are a number of money-saving features, such as an offset account, that your current loan may not have, but it may be worthwhile in the long run to have a home loan with this option.
Take a close look at fees and added benefits
It is important not to just glance over fees associated with home loans. Not every lender charges the same fees and you may end up paying more than expected if you don’t do your research.
Annual fee: If you are paying an annual fee that comes with added benefits, look at these closely to work out what these are costing you. A credit card without an annual fee, discounted insurance or free increases to your loan may be costing you more in the long run than the benefits you are getting from paying an annual fee.
Lenders may charge or have restrictions on:
• Redraw facility
• Accessing your funds
• Over the counter payments
• Late or missed repayments
• Extra repayments
• Increases to your loan, transactions and loan features
You also need to be aware that different lenders may use different names for these fees. So when speaking to lenders, make sure they clearly lay out what fees and charges are involved and how it will affect your monthly repayments.
Look beyond the honeymoon
You may have seen lenders advertising an interest rate which is much lower than their other home loan products. It could be a fixed rate or a super low variable rate that lasts for a period of time prior to reverting to a higher rate. This introductory or honeymoon rate is used as bait in order to attract new borrowers.
The issue is that this low rate, whether it is fixed or variable only lasts for a period of time. What you need to find out is what it reverts to at the end and do some serious number crunching as to whether the savings are worth it and what will you do when it reverts to the higher rate.
If you still owe more than 80% of the purchase price, then mortgage insurance may prevent you from refinancing to a better rate elsewhere and your current lender may charge a fee to switch into a more competitive rate.
So, how can you protect yourself and avoid getting caught up and paying more? Simply by doing your research. Before applying, you should find out what the interest rate will be when this period ends. Compare what you will pay in interest on a few loans say over the first five years and see how they stack up.
Your current lender could be the one
If you are looking for a better home loan, it does not necessarily mean you need to look for a new lender. If you are happy with your current lender, you may find that you are able to get a better home loan just by talking with them.
Give your current lender the opportunity to offer you a solution, whether it be switching to another loan they offer or cutting the rate or fees on your current loan. They will be keen to retain good customers so make sure you try this first before going to the time and expense of refinancing.
If not, look beyond your lender
However, if you are not happy with you current lender, it is worth looking at what other lenders have to offer.
Comparison sites such as mozo.com.au or ratecity.com.au are a great place to start as you can compare a number of home loan products in the one spot.
When you are looking to refinance, you need to feel comfortable not only with the loan product but how easy they are to deal with and if they are doing whatever they can to assist you with the refinance. Asking the right questions not only puts you on the front foot, it also give you the opportunity to get to know the lender and how they interact with customers.
Getting a sharp rate, great features and excellent customer service can contribute to a pleasant, stress free experience. Visit our website or call State Custodians on 13 72 62, to find out how you could benefit from refinancing with us.