Headlines about interest rates are in the news all the time partly because the cash rate is at the lowest levels ever seen before, but also because banks and lending institutions are getting more competitive with their home loan rates. This environment has sparked a wave of refinancing, where people are choosing to leave their bank to chase better rates.
Finding a home loan that is merely .25% lower than what you might be paying now, can result in saving tens of thousands of dollars over the life of your loan, so it’s definitely worth shopping around.
Most lending institutions will offer both a fixed and variable interest rate, they’ll also package up home loans and bundle up a range of additional extras like credit cards and discounts across insurance and various other products.
So when it comes to giving your mortgage a health check, what exactly should you be looking for? We’ve put together a few little tips below that might make your home loan research a little easier so you can shop around to find the best deal for you and your family. It can take a little time, but it could save you a lot of money in the long run!
RATES: Most people are drawn to the lowest rate straight away, which is common sense. However if the home loan is a package, take notice of the annual fees as these might end up compromising that .10% lower rate. Rates will differ for ‘fixed’ and ‘variable’. A variable rate is subject to fluctuate at any time, meaning it can go up or down. A fixed rate is generally locked in for a period of time between two and five years, and this means the rate will not alter for that entire period.
If you’re shopping around, consider if you’re looking to refinance an investment property loan, or a home loan for your principal place of residence (PPR). Remember, an investment property loan will generally have a slightly different rate and terms so don’t be drawn to the headlines and advertised rates straight away. Be sure to do your research. The Reserve Bank of Australia (RBA) determine the cash rate on the first Tuesday of every month (except January). Banks and lending institutions do not follow the RBA rates but can fluctuate in line with them.
ACCOUNTS: A home loan package will generally come with certain savings-type accounts. Be sure to keep in mind if these accounts suit your needs and if there are fees and charges on these accounts. An offset account is quite often a popular choice for those with a mortgage. An offset account offsets interest based on the balance of funds. For instance, if you have a mortgage worth $200,000 and you have $20,000 of savings in your offset account, you’ll only get charged interest on $180,000. Some mortgages also offer a redraw facility where you can draw down on extra money you’ve put into your loan. Do your research and consider what is right for you and your circumstances.
TERMS & EXIT FEES: Each lender can provide a home loan over a different term but the most common is 25 or 30 years. Discuss with the bank whether you can make repayments weekly or fortnightly, as this can be a great strategy to try to pay down your loan sooner. You can choose to pay interest only (IO), which is just the interest payable on the loan amount. Or you can pay principal and interest (P&I), which means you pay both the interest and some of the loan amount.
If you have a mortgage with one bank, and you’re looking to move your home loan to another bank with a better offer, be sure to check on your exit fees. Some home loans have exit fees and they can range from just a few hundred dollars to thousands. This should be one of the first things you investigate before shopping around.
FEES: Keep an eye out for fees and remember that refinancing with another bank can cost you. Don’t get lured in simply by rate, and remember to factor in exit fees from your current bank and set up fees at your new bank along with any annual fees that the mortgage might have. If the new mortgage comes with a credit card facility check the terms and conditions and interest rate on purchases, and if there are lots of extras and discounts included just check the fine print as you may be paying for this somewhere else hidden in the loan.
This is general information only and should not be considered financial advice. For financial advice based on your individual circumstances, contact the friendly team at JDL Strategies!