This is a much covered topic, but given the slowing property market in many areas, the number of new loans will decline. So lenders will sharpen their pencils to retain their existing business and increase their share of the refinance market.

So, as we are constantly urging, take the time to give your loans a health check.  If you don’t have the resources or expertise to do so, contact your finance professional or the team at Switzer Home Loans and ask them to do it for you. It could the best phone call you ever make.

Here are 5 good reasons why:

1. To Save Money

This is a no brainer.  If you are being charged 1.00% more on your loan than you should be, for every $100,000 of debt you have, you are paying $1,000 per year too much.  On a $500,000 loan, that’s $5,000 per annum coming out of your pocket for no advantage.  Of course, that is a simple example but the message is clear, if you are not checking your loan, you may be costing yourself thousands every year for no good reason.

A word of warning though, if you do want to switch loans for a better rate, check what it will cost you in discharge costs for the existing loan and establishment fees for the new loan.  Also check if there are ongoing fees on the new loan.  These fees and charges can have a big impact on the viability of switching loans so make sure the interest savings you are gaining are not offset by the costs of switching. 

2. Make sure the loan can be managed to suit your needs

Sharp interest rates are only one part of a good home loan.  Having a suitable structure is just as important.  Is the repayment type (Interest only v Principal and Interest) suitable, are the fees and charges excessive and is the interest rate structure right for you?  Other factors that make a difference are simple things like making fortnightly repayments instead of monthly repayments, having access to an offset facility and separating your loan into two or more splits, or portions to reflect the purpose of the funds you obtained with the loan.  For example, if you borrowed against your home for investment purposes, it is much easier to manage the investment accounting and tax if the investment loan is separated from your home loan debt.  A decent mortgage professional can identify a suitable structure for you very quickly, so a short conversation may make your loan easy to manage. 

3. Do you have the most suitable repayment structure? 

Most borrowers are aware that Interest Only repayments are more expensive than Principal and Interest, and that the banking watchdog, APRA has forced a big change in the accessibility and cost of Interest Only loans.

Lenders now encourage borrowers to make Principal and Interest repayments by offering rate discounts for that repayment structure but they will still provide Interest Only loans where it is deemed suitable for the borrower. Suitable purposes include investment borrowings, if the client is having a short term reduced income (eg maternity leave) or they are planning to sell an asset and pay the loan off in the short term.  If the repayment structure is unsuitable, your strategy objectives won’t be met, your loan will be more costly in the long term and as many of those coming off Interest Only repayments at the moment will attest, a poorly structured loan can place you under great financial stress. 

4. Consider Fixed Rate options 

Interest rates are low now but it has not always been the case and they will rise again at some stage, so if rate rises will place you under financial stress, a fixed rate loan may give you the insurance you need for your cash flow.  

Fixed rate loans are less flexible in terms of repayments and usually exclude useful features such as offset accounts. Penalties may also apply if you make lump sum payments or pay the loan out during a fixed rate term.  Care therefore needs to be taken to ensure a fixed rate loan is suitable, but a popular strategy to counter that is to split your loan and have a fixed rate portion and a variable rate portion.  That way you can have the best of both worlds.  Security and an element of flexibility. 

5. It’s easier than you think 

The first step is to call your existing lender and ask them to review your circumstances to ensure you are getting the best from your loan.  Do your homework first and find out what rates are available in the market and compare them to what you are being offered. If your rate is not competitive, ask your lender to provide you with some relief.  If they can’t, or won’t, it may be time to look around. Refinancing does not take too much time or effort, it just takes a little organisation and paperwork, but not as much as you would think.    

It’s becoming an Australian past time  to complain about our banks, and the media are having a field day with the Royal Commission. But perhaps we should be taking some responsibility for our own positions.  The best way to keep your lender accountable and to make sure you are being looked after is to regularly review our own individual arrangements with them. 

If these reasons get you thinking, grab the phone and speak with a mortgage professional and use their experience to give you the right loan structure and pricing for your needs.  Five minutes could save you a small fortune.