How to review your home loan

Rates and Fees verified correct on December 5th, 2016

Changing financial circumstances and priorities may affect your home loan needs, which is why it’s a great idea to review your home loan every year.

Have you ever wondered whether your current home loan is the best for you given your changing financial priorities? With new products constantly being added to the market, it pays to do a review of your home loan at least once each year to determine if your current loan still meets your priorities or if there is a better product out there that would save you money and give you improved features.

A home loan review could help you get a better loan product and allow you to save on interest charges, get better service, or increase your home loan amount. With a little bit of research and planning, you could also get more benefits from your home loan, including easier access to any extra payments you may have put in or reduced monthly payments using an offset account. Being able to service your home loan as your financial situation changes can also help you pay off your mortgage much faster.

How to review your home loan

Giving your home loan a ‘health check’ simply entails reviewing the various features of your home loan to determine if it’s still the best product for you. If your financial situation is likely to change in the coming year or you’re looking to save some extra money on your mortgage, a home loan review could be ideal for you. The health check would normally take around 15 minutes and can be done online.

Different circumstances could change your home loan needs and the features you need in a loan package. For instance, home renovations could end up changing the features that are relevant to your home loan, requiring a review to see if you can lower the interest rates on your mortgage or benefit from some of the equity accumulated in the property. Other life changes such as having a baby or changing your career could affect the amount you would be able to pay each month towards your home loan, requiring a change of the amount paid to your lender or an alteration of payment frequency. Each change in your life could force you to look for an alternate solution, which makes a home loan review very beneficial.

Now that we have seen the importance of reviewing a home loan, let’s look at the steps you can take to guide you through the review. Here are the key steps you can follow to ensure you give your current home loan a thorough review:

    • Rates. Reviewing the interest rate on your current home loan can be a great starting point when giving your home loan its yearly health check. Comparing fixed and variable rates offered by various lenders can help you determine whether you are paying an unreasonably high rate or not. If your fixed rate or interest-only home loan happens to be expiring soon, a look at what other lenders are offering in terms of interest rates could help you determine whether to switch to a new loan product that is more affordable or stick to your current mortgage. Check to see where experts think interest rates will end up each year to help you decide whether to switch home loans to a product with a lower rate or whether to get a fixed home loan so as to protect yourself from rising interest rates.
    • Fees. A home loan review is the only way to determine if you are paying more than you need to on your home loan. Check out what other lenders are offering to determine if you can save money by switching to a different home loan. If you do decide to switch home loans and go to a lender with lower fees, you should also calculate the cost of switching to ensure it’s worth it. Your current lender can charge you discharge fees on your home loan, which will be lower if you have been servicing your loan for longer. If the lower fees you will get by switching to a new home loan offset the switching fees, it may be worth it in the long run.
    • Features. The features on your current home loan may not always be relevant to your current priorities, which is why it’s important to take a closer look at your loan features during your home loan review. Changing needs may require different solutions, so it’s important to make a checklist of all the features on your current loan and look at each to determine if you still need it. A quick look at what other mortgage providers are offering can help you see if your home loan offers you all the features you need. Read on to find out what features to look at.

Features to compare when reviewing your home loan

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  • A redraw facility. A redraw facility allows you to access any extra payments on your home loan to cater for emergency needs. If you are struggling to meet upcoming financial commitments such as a home renovation or medical emergency, a redraw facility on your mortgage could bail you out. It’s important to ask yourself whether your current home loan allows you to easily access any extra payments you have made and it there are any charges involved. If not, switching to a home loan with such a facility, and one that can be easily accessed either online or through a mobile banking application, could be of great convenience.
  • An offset account. If you have extra money lying around in a savings account, you could use it to offset payments to your home loan so as to reduce your monthly payments. During your home loan review, you could check whether you can benefit from such a facility on your current loan and link your savings account to your home loan.
  • Additional repayment flexibility. During your annual home loan review, it’s important to ask yourself how much you are allowed to make in extra payments each year. Some home loans will restrict your ability to make any extra payments on the principal amount, especially if the interest on the home loan is fixed. Switching to a more flexible home loan with no penalties on extra repayments could help you pay off your mortgage faster.

How to refinance your home loan

If your home loan review reveals that you are not benefiting, simply refinancing your current home loan could fix the problem. Refinancing your loan could end up saving you thousands of dollars by lowering your interest rate and fees, and eliminating any features on your current home loan that you do not use. In general, refinancing to a lower rate home loan that is securely funded is very simple. Here are the key steps to follow if you wish to refinance your loan:

      • Calculate the cost of refinancing. Using our refinancing calculator, you will be able to determine how much you could borrow and what you would be required to pay in monthly repayments on your new home loan. Call your current lender to try and negotiate a better interest rate and get a quote on the exit fees you would incur if you opted to switch home loans. If your lender is interested in keeping you as a customer, they will at least try giving you a better deal.
      • Look at current deals on offer. A look at some of the home loans provided by other lenders will help you choose one that is suited to your needs. Some mortgage lenders will give rebates and other incentives on their home loans to encourage customers to choose them while refinancing their mortgages. For instance, some lenders offer cashback incentives to new customers, where they give out cash for successful applications for home loan products.
      • Compare home loans from different lenders. This will help you settle on a home loan that suits your current finances, ensuring that you will not struggle to make payments. You could also end up with a loan with the features you want such as a redraw facility, favourable payment frequency, minimal loan fees and no penalties on extra payments.

Reviewing your current home loan is an essential step as your financial situation and home loan priorities change. A quick review of your loan could help you determine whether to switch to a new lender who offers more favourable features such as smaller monthly repayments and better terms.

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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