A spring clean can allow you to organise the inside your home.
With over $13 billion of loan commitments in Australia at April 2012 according to the Australian Bureau of Statistics, this time of year can be a good opportunity to spring clean your mortgage as well.
If you've just cleaned out your wardrobe, fixed up your garden and done your tax return then keep the ball rolling and review your home loan too. A mortgage review can help you revaluate your home loan and ensure you’re on track to owning your own home sooner.
Steps to spring-clean and review your mortgage so you're not paying more than you have to:
1. Review your repayments
Review the size of your current mortgage repayments, know what your average minimum repayments are and work out if you can overpay by looking at other elements of your household finances.
Also consider how often you repay. You can make simple savings by paying the same amount more regularly. You can make big savings over the life of your loan by switching from making monthly repayments to fortnightly. For example, note down your monthly repayments times the twelve months of the year, then divide that figure by twenty six. More regular repayments means less interest on the loan in the long run.
2. Is offset available and are you using it effectively?
The simplest way to save on interest is with a 100% offset account. Get your salary paid directly into your offset account and everyday you have a positive balance in your offset account, you’re paying less interest. This can add up to huge savings over the life of the loan. What is an offset account?
3. Change your loan according to your circumstances
Most lenders can alter your loan to suit your changing needs without a fee. You may have finished a fixed rate term and might need to consider refixing or determining if your variable rate home loan best meets your needs.
You may be able to afford to repay more on your variable rate loan due to changes in your employment. You may be able to reduce your interest by making a lump sum payment into your home loan.
4. Examine your home loan’s features
Lenders often charge for features, so it’s important to be aware of which features you’re paying for and how to use them effectively. For example some lenders do not charge for features such as redraw, offset and switching to alternative loans in within their product range, where as other lenders will charge you monthly admin fees and exit fees, so it's important to compare your home loan with others that are in the market to see if you can get a better deal.
Should I refinance?
Refinancing can allow you to alter your mortgage to a more appropriate arrangement. Many people refinance if they are planning to renovate, pay of debts or get a cheaper rate. If you are interested in refinancing, speak to your current provider about your needs and options available and consider all the costs involved.
Compare: Home loan rates for refinancing
Don’t be afraid to ask your current provider for potential savings you could make should you refinance.
For example, take a $300,000 loan for a 30 year term at 6.78% variable interest rate. If you take up a 100% offset account you can use your everyday account to reduce your home loan interest. In this case, moving to an offset account with fortnightly repayments could mean saving more than $180 000 in interest as well as a owning your home in close to 20 years.
Take the time to spring clean your mortgage, not just the things inside your home. A review of your mortgage could save you from paying extra and shorten the time it takes to finally own your own home.
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