When to Review Your Mortgage

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By now you’ve undoubtedly seen many e-mails, tweets, blogs and other announcements stating that the Reserve Bank of Australia has cut interest rates to a record low of 1.50%, For various economic reasons interest rates in Australia have been falling since November 2011.

While historically banks and lending institutions used to pass on the rate cuts or increases in full, somewhere during this period many lenders began announcing that they would part ways with this practice meaning that while previously you could have relied on your bank to pass on rate cuts to you with relative certainty, nowadays you no longer can.

As such it’s become more important than ever for you to regularly review your home loan’s interest rate to ensure you’re on a competitive rate. It also makes sense for you to review your overall loan structure with regard to your personal financial situation. What may work best for your neighbour does not necessarily work best for you and a proper review with an expert will yield great benefit to you.

If you haven’t reviewed your home loans within the last 12 months here are 5 perfect circumstances to review these as soon as possible

  • Your fixed rate or intro period is about to expire
    When a fixed rate home loan ends it will revert to a variable rate. You may want to ask an expert for some guidance on whether it would be most beneficial to continue on a variable rate or look at fixing the loan again. This is also the perfect time to review your current lenders rates in comparison to those of other lenders to see if you can secure lower rates or a more favourable loan structure with regard to your overall situation.
  • You have a variable rate loan and are considering fixing
    With interest rates at a historical low, fixing your home loan and locking in a low rate for the years to come might seem like a great opportunity and it certainly might be, however a fixed rate home loan is generally much less flexible than its variable counterpart and a careful assessment of its suitability is required. Some situations where you might want to look at fixing your rate include:- You want the certainty of a set repayment amount every month

    • You have other more urgent debts to pay off first
    • You don’t want to pay that particular loan off any faster. That may be the case where the loan being considered is for investment purposes and there are other non-deductible debts to pay down first.
    • You don’t want to or won’t be able to make extra repayments on the home loan due to a change in circumstance such as becoming self-employed
    • Fixed rates are lower than variable rates (this may or may not be the case at the time of reading)It is also possible to create a mix of variable and fixed rate loans so that you have the best of both worlds, and as of the time of writing, there is even an option that allows you to effectively offset or pay off as much as you like on a fixed rate loan. It’s always best to seek advice when considering your options.
  • You have high levels of personal debt such as personal loans or credit cards
    Credit cards, personal loans and other consumer debts can have much higher interest rates than home loans. You can potentially significantly reduce the interest payable on the debts if they are consolidated into your home loan, but can also end up dragging the repayment of the debt out for far longer if you aren’t careful with its management. It will pay to get some proper advice and guidance on this, and to have a plan put together to place you in a better financial position going forward.
  • You are looking to move, remodel or renovate your existing place
    Changing properties usually means altering your loan so this is a perfect time to review the lender, interest rate and the loan structure at the same time. If you’re looking at remodelling or renovating your property you might be surprised about how much of the cost can be recouped with a lower interest rate.
  • You haven’t reviewed your home loans and their structure in some time
    You should be reviewing your home loan structure at least every 2 years on average. Any sooner and the costs of switching may outweigh any benefit gained (although it certainly doesn’t hurt to check) and leaving it any later may mean you’re likely missing out on potential benefits (read: paying too much of your hard earned money away to the banks). If some time has passed since your last review speak to an expert who will be happy to provide some advice.

These are perfect times to start taking ownership of the debt aspect of your financial situation. Optalife can provide guidance with what you are trying to achieve with your financial position. All it takes to begin is a phone call or an e-mail.

The information provided in this article is general information only and does not constitute financial or credit advice. It has been prepared without taking into account any of your individual needs, objectives or financial solutions. Before acting on this information you should consider its appropriateness, having regard to your own needs, objectives and financial situation. We recommend you seek professional advice where appropriate.

Optalife Pty Ltd & Optalife Finance Pty Ltd are not related entities.

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