Most people set up a home loan and then leave it alone for years. A loan that was competitive when you took it out may not be now. A yearly check-up takes an hour or two and can save you money or help you reach your goals sooner. Here's what to look at.
1. Your interest rate
Find your current rate on your latest statement or banking app. Then find out what rates are being offered to new customers with a similar loan size and equity. If there's a meaningful gap, you have a reason to act.
Moneysmart suggests telling your current lender you're planning to switch to a cheaper loan with another lender. To keep your business, they may reduce your rate. Having at least 20% equity and a good credit history can strengthen your position.
2. Your fees and features
- Are you paying an annual package fee? Are you using the features it includes?
- Do you have an offset account? Is money actually sitting in it?
- Are there monthly account-keeping fees you could avoid?
- Is your redraw or offset set up the way you need it?
An offset account only helps if you use it. If your savings sit in a separate account at another bank, moving them into the offset may reduce the interest you pay.
3. Fixed rate and interest-only expiry dates
Check when any fixed rate period ends. When it does, your loan usually moves to the lender's variable rate, which may be higher than what you could get. Mark the date and start reviewing a couple of months beforehand.
If you have an interest-only period, note when it ends too. Repayments rise when the loan switches to principal and interest. Our guide on interest-only and P&I loans explains why.
4. Your equity
Your equity is the difference between what your home is worth and what you owe. Rising values and repayments both grow it. Once your loan drops to 80% or less of the property's value, you may have more options with lenders. Equity can also support renovations or an investment purchase. Our investment loans page covers using equity to invest.
5. Your circumstances
Think about what's changed in the past year:
- A new job, a pay rise, or a change in roster or overtime.
- A new baby, or a partner returning to work.
- Plans to renovate, build, upgrade or buy an investment.
- Other debts you'd like to deal with, such as a car loan.
Any of these could change which loan structure suits you. If your income has dropped or you're finding repayments hard, contact your lender early. Lenders have hardship processes, and talking to them sooner gives you more options.
6. The costs of switching
If you're thinking about refinancing, Moneysmart lists costs to factor in:
- A break fee if you're on a fixed rate.
- A discharge fee to close your current loan.
- An application fee on the new loan.
- Lenders mortgage insurance, if you have less than 20% equity.
- Possible government charges, so check with the lender.
Moneysmart also suggests keeping the new loan term similar to the years left on your current loan, because a longer term means more interest overall. Work out how long it would take for the savings to cover the switching costs.
An illustrative example
Round numbers for illustration only. If switching would cost you about $1,000 in total and save you about $100 a month in interest, it would take around 10 months to break even. After that, the savings are yours, as long as you keep repayments on track.
7. Your insurance and protection
While you're reviewing, check that your home and contents insurance reflects current rebuild costs. In Mackay, make sure you understand your cover for cyclones and flood. It's also a good time to review whether you have income protection or life cover in place, which a financial adviser can help with.
A simple yearly checklist
- Compare your rate with new-customer rates for a similar loan.
- Ask your lender for a better rate.
- Review fees and whether you use the features you pay for.
- Note fixed rate and interest-only end dates.
- Check your estimated equity.
- Consider any changes in your life or plans.
- Weigh any switch against the costs.
If you'd rather not do this yourself, a broker can compare options across a range of lenders and handle the paperwork. Learn more on our refinance page, or if you're self-employed, see our self-employed home loans page.
Talk it through
We're happy to run a yearly health check on your loan, compare it with what's available, and tell you plainly if staying put is the right call. Call or text us on 0458 773 002, or book a free assessment. For most home loans there's no broker fee; any fee is disclosed upfront in our Credit Guide.
Common questions
How often should I review my home loan?
Once a year is a sensible rhythm, plus a review a couple of months before any fixed rate or interest-only period ends.
Should I ask my lender for a lower rate before switching?
Yes. Moneysmart suggests telling your current lender you plan to switch, as they may reduce your rate to keep your business.
What costs are involved in refinancing?
Common costs include break fees on fixed loans, discharge fees, application fees, possible government charges and lenders mortgage insurance if you have less than 20% equity.
How do I know if switching is worth it?
Compare the total switching costs with your expected savings and work out how long it takes to break even. Keep the new loan term similar to your remaining term so you don't pay more interest overall.
Sources
This guide is general information only and doesn't take into account your objectives, financial situation or needs. Talk to us about your circumstances before acting on it. Related: Refinancing.