Do you know your interest rate?

Interest rates are a big factor in each repayment and the total cost over the life of a loan, so staying on top of your current rate, as well as the interest trends across the market, is essential.

By staying on top of interest rates, borrowers can make informed decisions about choosing a first-time home loan or getting a better rate by refinancing.

Interest rate percentages are based on a number of factors – the Reserve Bank, the cost of money on overseas markets, and the general state of the economy. Interest rates don’t appear to move by much when looked at as a simple number, sometimes only a fraction of a percent, but each basis point makes a significant difference to the total cost of a loan, and makes a big difference when you’re working to pay down your mortgage.

When you first lock in a home loan, you’ll choose a fixed or variable interest rate.

A fixed rate does not change over a set period of time, and your payments will be predictable each pay cycle. On the other hand, a variable rate is attached to the market interest rate and will move up and down with the market.

Interest rate calculators are very useful to help you compare rates across fixed and variable loans, and translate the rates into an impact on monthly repayments, loan length and the total cost of a loan.

The best way to keep on top of those movements is to stay in contact with your finance broker. They will be able to help you shop around to find the best deal for refinancing when the time is right for you.

When was your last home loan health check?

Circumstances can change, leaving your home loan less suitable than it was originally. A home loan health check can reveal if you’re paying too much.

What’s involved?

Your finance broker can do a full home loan health check for you either in person or over the phone. They will check if your loan is still competitive and still suited to your individual needs.

Having an expert do this for you can also take the stress out of the process for you. It is advisable to get this check done at least once a year, or if your circumstances change.

Questions to ask

Be aware of what you want checked. Think about the following when you speak to your broker:

·         Am I paying an unreasonably high interest rate?

·         Am I paying high fees?

·         Am I happy with the service I receive?

·         Does my loan give me the features I need?

·         Am I paying for features I don't use?

·         Have my financial circumstances changed?

Benefits

A home loan health check will generally cost you nothing and could save you thousands. Your home loan features could be improved, or you could find yourself with a lower interest rate. A better payment structure could also be introduced, making your repayments more manageable.

Checking the state of your current loan could uncover the possibility of taking out additional finance, which can consolidate any other debt you may have, or help you purchase an investment property.

What is refinancing and when should I do it?

As a homeowner with a mortgage, chances are you’ve heard of the term 'refinancing'.

Refinancing involves reviewing your current mortgage, and potentially swapping your loan to another lender, who can better meet your current needs, wants and circumstances.

Refinancing can be a strategy to secure a lower interest rate, switch to a different type of loan and can also allow you to consolidate your debts or pay down your mortgage more quickly.

Another common reason borrowers look to refinance is to access equity – the amount you'd get from selling your home after settling any associated loans and any other costs associated with the property.

However, refinancing isn’t suitable for everyone. There are many different factors you’ll need to consider when thinking about refinancing a loan.

So how will you know that refinancing is the right option for you?

The first step is to speak to a professional, such as a mortgage broker, about your needs, objectives, current financial situation and whether you can afford a different loan structure, particularly if you have more than one property.

Are you looking to pay less interest?

If your purpose of refinancing is to aim for a lower interest rate, this could potentially save you a lot of money in the long-term.

While saving money is often one of the biggest benefits of refinancing, it may not be as straightforward as that and careful consideration is required.

Sometimes refinancing may only save you a small amount per year, particularly when you take into consideration any exit costs, application fees and taxes involved. Refinancing may also not offer benefits if the loan will attract Lenders Mortgage Insurance (LMI) or features like an offset account aren’t offered with the new loan.

However, if it’s going to save upwards of $1,000 a year, refinancing might be a sensible approach.

At this point, the broker will need to find out about your existing loan, repayments and current loan structure.

Your mortgage broker will also need to find out more about your current financial situation, including your income, any other current debts and about any assets you own.

The current value of the property is also taken into consideration, your broker will have access to current data that will indicate what your property is likely to be worth.

The broker will then review the various loan options and figure out whether it’s worth it for you to refinance.

Your mortgage broker can tell you if getting a lower interest rate from your current lender can be achieved without refinancing.

Do you want to change your loan type?

Refinancing may allow you to change to a different loan type, for example switching from a variable loan to an interest only loan.

If you do decide to go down the refinancing path, working with a broker rather than going straight to a lender has advantages.

Brokers generally have access to loan options from a range of different lenders and if there’s a better opportunity for you, they’re usually able to access it.

Do you want to consolidate your debts?

If you want to refinance to lower lending costs to help you manage your monthly repayments, speak to your mortgage broker who can negotiate with your current lender for a rate suitable to your current situation.

Your broker can also help you look at alternative options to consolidate your personal loans and credit cards into the one loan. This could help you in lowering your monthly repayments, or help you keep your repayments on time, and even save you interest in the long term.