4 reasons you need to review your home loan right now
Ignoring your home loan is a bad idea at the best of times, but in a world of high interest rates, it's a very expensive mistake.
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If you haven't looked at your home loan for a while, you might be shocked to learn how high your interest rate is now. We've entered a world of rising interest rates and high inflation. That's not a reason to panic.
But it does mean borrowers who are not proactively looking for the best deals are losing out. Let's explore why that is and what you can do about it.
1. Costs of living just keep on rising
One of the big stories of 2022 is inflation. Many ordinary daily life expenses have become much more expensive. This includes petrol, groceries, power bills, rent and almost everything else.
The rising cost of living is reason enough to take a second look at your mortgage. If you can get a better rate on your home loan, you're automatically reducing one of your biggest expenses right there.
2. Interest rates are rising too
The Reserve Bank of Australia (RBA) has lifted interest rates multiple times this year. This has made most borrowers' home loan repayments jump by hundreds of dollars a month.
Interest rates are now at levels not seen since 2016, which is a big shock for borrowers who have gotten used to low rates in the last few years.
The official cash rate (which determines interest rate costs for borrowers) has jumped this year from 0.10% to 1.85% in just a few months.
This means if you had a $600,000 home loan with a variable interest rate of 2.00% at the start of the year, it would now be at 3.75%.
This would make your monthly repayments leap from $2,217 to $2,778. That's an increase of $561 a month.
3. You're probably not getting the best deal right now
There's another reason you need to look at your home loan again. It's because your lender might have stuck you on a higher rate than you need to be.
Here's how it happens. You apply for a mortgage with a great interest rate in 2019. You get approved. You sign the contract and start making repayments. You never really think about the loan again.
Meanwhile, interest rates drop even lower and your lender starts offering even lower rates to entice new borrowers. But it keeps you on your old rate and hopes you don't notice. Most borrowers don't.
You can actually check this for yourself quite quickly. First, find your current home loan rate (check your latest loan statement). Then, go to your lender's website and see what it's offering for borrowers for the same type of loan as yours.
You might be shocked to see the difference.
Thankfully, there are some lenders in Australia that don't do this. You can look for lenders that offer an "automatic rate match" or promise "one rate for all customers".
Unloan is one of the few lenders that has one rate for all borrowers of the same loan type. This way, loyal existing customers and new ones can get the same deal.
4. Refinancing your mortgage is much easier than you think
Another reason to review your home loan is that it's much easier to refinance than you may realise.
Once you have a home loan and you've been making regular repayments, most lenders consider you an ideal borrower. You already have a property, you've hopefully built up some equity and have a strong record of making repayments. Lenders want your business.
And many lenders now offer fast, entirely digital home loan applications. These lenders often have very low rates and target refinancers because these loans are easy to approve quickly.
For example, Unloan is an online lender that currently only lends to refinancers and has a digital home loan application system. An application to switch to Unloan can take only minutes.
