We usually give our home a good spring clean once a year, purge old clothes, redecorate the house when you feel the need for change. But looking beyond the furniture and all the other pretties in your home, do you regularly review your home loan? Circumstances change over time, the loan that suited you when you first purchased your home may not be the best fit for you a couple of years down the track as banking products and packages evolve over time. It’s one of those things that is set up in the beginning then left and not thought about again.
When we purchased our current house 12 years ago, our circumstances were vastly different to today. We were on one income, had two 18 month olds with another one on the way, ooh I remember those days, so very long ago. While the loan suited our requirements at the time a lot has changed in those 12 years. We are now back to two incomes, the kids have grown up and now seem to cost a small fortune. The one thing that has not changed much in this time is our home loan, we reviewed it 8 years ago and made a small change, but have not reviewed it since until just recently. 8 years is far too long between reviews, perhaps we were too busy to think about it, or we’ve just been comfortable with what it was, but it should have been a priority, spring cleaning your home loan can:
- save you money, with interest and charges
- reduce your repayments
- consolidate your debt
- provide flexibility for the future
Continue to read further for my tips on reviewing your home loan, and things to think about.
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Things to look at when comparing your loan:
- Compare your interest rate on your loan to other financial institutions to see that your bank is competitive to others in the market
- While the interest rate is important it is also vital to look at any ongoing fees with the loan as they contribute to the total cost of the loan throughout the year
- Does the loan provide you with the flexibility to change your repayment period? It may be more convenient if you are paid weekly or fortnightly to budget your loan repayments to come out the day after your wages go in so it is not such a big hit once a month. Another benefit of doing this is that you will actually pay 13 months of payments throughout the year (52 weeks in the year dividend by 4 weeks = 13) so it helps you get that little bit ahead on your home loan
- Does the loan let you make additional repayments towards the loan, if you receive an inheritance or win some money at the Casino and would like to repay part of the loan will it allow this?
- Does the loan provide you with an offset account, this way the money in your bank account effectively reduces balance of the loan that you get charged interest on?
- Does the loan let you draw back down payments made in advance in the case of an emergency or if you feel your home needs a bit of a facelift?
Other items to think about
- Fixed interest rates, you may actually find at the current time that the fixed interest rates are cheaper than the standard variable rate. It may be worth considering fixing a portion of your loan at this lower interest rate to save some money over a number of years. However these loans normally do not let you make any extra repayments or repay early without a penalty, and there is always the risk that if the variable interest rate reduces that you will end up paying more interest. So you really need to consider your personal circumstances.
- What other bank accounts can the bank provide you with that will save you some money, do you currently pay transaction fees on your personal bank accounts, do you have a credit card with annual fees and a high interest rate.
Ways to save money
- Make repayments weekly or fortnightly for a quarter or half of the usual monthly repayment and you will be one whole month ahead in repayments each year.
- Do you pay off your credit card in full each month and have an offset account, your money will be working harder for you by reducing your home loan interest if you make your everyday purchases on the credit card while the funds stay in your Offset account. This only works though if you pay the credit card in full each month during the interest free period to avoid the excessive credit card interest charges
- Do you have a number of different loans that you have taken out over the years, home loan, personal loans, credit card debt. It may be worth looking at consolidating your loans together to make it more manageable and some money on the higher interest loans.