By Kirsty Lamont
This January, make the biggest resolution you can: give your home loan a health check, and assess whether it might be time to switch. By switching to a cheaper loan and maintaining your old repayment levels, your New Year’s “Revolution” will see you start to pay down your loan at record speed, shaving years of repayments off.
Alternatively if your household finances are stretched, switching to a cheaper loan will reduce your monthly repayments and free up cash you can put towards other expenses. The downside to this is that it will take you longer to pay off your loan, so as soon as you are able to, increase your repayments again.
If your fixed-rate home loan is coming to the end of its fixed term, you need to compare options. If you do nothing when your fixed rate term ends, you will simply be moved onto your lender’s standard variable rate. Be aware that this is often not a very competitive rate, and you could end up paying a lot more than you should be.
Compare your new rate with the best rates on the market and if you’re getting a dud deal, negotiate a better one with your bank or switch to a more competitive option, keeping in mind that a rate discount of one per cent will save the average borrower with a $300,000 home loan over $2000 in interest charges each year.
Even if you don’t feel the need to switch your home loan, you should review it every three years or so to make sure it’s still competitive. You might have started out with a basic home loan with no bells and whistles but could now make good use of features like free extra repayments and an offset account to get ahead on your loan.
In particular, if your financial circumstances or lifestyle have changed (or are about to), check that your loan is still a good fit with your needs – families who are having a baby or who will be living off one income for a period of time may want to consider switching to a cheaper loan in order to reduce their monthly bills.
Some of the best products available at the moment are:
1. The UBank UHomeLoan offers an extremely competitive 4.62% variable rate, plus no application or ongoing fees and fee-free redraws.
2. On the fixed rate front, the Greater Building Society is offering a 4.29% one-year fixed home loan with no monthly fees, free redraw and offset account.
3. ME Bank’s winning combination of great value loans and excellent customer service saw the bank voted Australia’s best home loans provider in the 2013 Mozo People’s Choice Awards.
Be aware when switching your home loan you may have to pay exit fees on the old loan, and upfront fees on the new loan. Exit fees have been banned for any home loan taken out from 1 July 2011, but may still apply to older loans, so check with your lender before you switch.
These days there are a number of competitive loans out there with no application fees as well as great interest rates, and you can also negotiate with your new lender to waive the upfront fee for you. If you are refinancing more than 80 per cent of your property’s value you will need to pay lender’s mortgage insurance again.
Make 2014 the year you kickstart your way to financial freedom by tackling your biggest debt of all!
Kirsty Lamont is a director of Mozo.com.au which helps Australians compare credit cards, home loans, insurance and other financial products. Kirsty previously worked for Virgin Money in Australia and BankWest. As a consumer finance expert, Kirsty is keen to share her insight and advice and help other Australians get on track to financial freedom.
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