Steve Jovcevski is Mozo’s property investment and lending expert. With an extensive knowledge of home loan products and property trends, Steve is full of practical tips to help first homebuyers, refinancers or investors build and get the most out of their property portfolio. Here are Steve’s DIY home loan health check tips!
It’s common knowledge that a health check with your local GP is a good idea every so often, but I bet you didn’t know the same could be done with your home loan.
A home loan health check involves reviewing all aspects of your loan with the goal of putting more money back into your hip pocket. What you’ll need: a spare afternoon, plus all the necessary documents (i.e. a copy of your loan, your statements for the past 12 months and an offset account statement if applicable).
Whether you’re an owner-occupier or investor, you can do your own home loan health check by answering these four simple questions:
Do I have the right home loan?
Before you get into the nitty-gritty of interest rates and features, you’ll need to confirm whether your current loan is still relevant to your property situation. For instance, if you’re an investor who has recently moved into your investment property, you’ll need to inform your lender to get your loan switched to owner-occupier.
It may seem like a no-brainer but you can actually save thousands of dollars over the life of your loan when you consider some lenders have massive differences between their owner-occupier and investor rates.
Can I get better rates?
Once you know your home loan reflects your current situation, what next? Compare your current rate to the interest rates offered by other lenders in the market using Mozo’s comparison engine.
If you find your interest rate isn’t competitive you may need to flex some negotiating muscles by calling up your lender and asking them to match more competitive rates advertised elsewhere. You may be surprised by their willingness to listen, as one Mozo staffer found they were able to negotiate up to 1.25% off the standard variable home loan rate from one of the Big 4 banks.
Refinancing your home loan to a more competitive interest rate could be a good option if your current lender has little room to move on rates. When refinancing, be sure to ask your lender how much they’ve increased interest rates in the past year because there’s no point in refinancing if your lender is going to put rates up three months into your loan.
Remember it isn’t for everyone so only go down the refinancing route, if you are certain you’ll recover the money you spent on refinancing costs (i.e. break or early repayment, legal, and government costs) in the first 12 months.
Also, consider how much you could save on interest if you fixed a portion of your home loan right now. With fixed interest rates at historical lows sub 4%, it’s worth putting on your home loan health checklist.
Do I need all those features?
Sort your home loan features into two categories; the features you regularly use and those you didn’t even know existed. If you find a good majority of features fall into the latter category, it may be time to downgrade to a basic loan and save on monthly maintenance fees.
Instead of downgrading your home loan, another option is to maximise the benefit of the features you already have such as an offset account which can save you thousands of dollars in interest payments over the term of your loan when used properly.
If you haven’t already, organise your salary to be directly deposited into the offset account to ensure you have the maximum amount of money offsetting the interest on your home loan and withdraw for everyday living expenses when you need to.
Can I afford to increase my home loan repayments?
If you’ve been sitting on your home loan for a few years, it’s very likely that your financial situation has changed; for example, you may be receiving a better income or have come into a small fortune for whatever reason. Changed financial circumstances require you to review how much you can put towards your loan repayments as well as your repayment frequency.
For instance, if you have an interest-only loan you should consider whether you have the discipline and can afford switching to a principal and interest repayment option. Not only will you be making serious headway in paying off the loan, it’s very likely you’ll receive an interest rate up to 30 bps cheaper.
Homeowners currently paying their loan off on a monthly basis should also think about switching to fortnightly repayments if they can afford to. Mozo has crunched the numbers and revealed by simply changing your repayment frequency from monthly to fortnightly, you could shave up to 3 years off a $450,000 loan over a typical 25-year term.
So that’s it, by answering these four simple questions you could be on your way to great savings through a home loan health check.
