Debbie Shankar - 9 Nov, 2015

Now is the Time to Review Your Home Loan and Consider Your Options

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The times are changing, and interest rates are starting to rise independent of any Reserve Bank of Australia (RBA) decision. This has astounded many home owners and mortgage holders.

The move by Australia’s big four banks — Westpac, Commonwealth Bank, the Australian and New Zealand Banking Group (ANZ) and the National Australia Bank (NAB) — to reclassify home loans as owner-occupied and investment, and then charge higher interest rates on investment loans surprised many. But when the big four announced owner-occupied home loan interest rates would rise in November many were shocked, as this move is not in-line with any RBA decision, and comes at a time when Australian household debt and median home prices in many states are at their highest.

For many home loan holders who have a high level of debt, rate rises could mean them having to tighten their budgets and search for ways to save more in order to meet their mortgage repayments. For example, Westpac have raised their standard variable rate home loan by .20 basis points to 5.68%. For a home loan holder with a $300,000 mortgage held over 30 years this means having to pay an extra $14,000 over the term of the loan or needing to find an extra $42 a month to make repayments.

How You Can Make Your Home Loan More Affordable

The good news is that you can make changes to your home loan now to make it more affordable. An eChoice mortgage broker can do this by reviewing your mortgage and then finding a suitable solution that makes your loan cost-effective. Some of your options are as follows:

1.  Ask your existing lender for a discount – According to the latest data, the Big Four banks are advertising their standard variable rates at around 5.64%. But, many home loan holders are getting better deals than this with discounted rates as low as 4.44%. So if you’re paying more than this, then it’s time to approach your lender and ask for a discount.

Most banks will be accommodating as competition in the home loan market is fierce, and at the end of the day your existing lender would like to keep you as a customer. If, however, your existing lender isn’t willing to negotiate, then it’s time to consider other options.

According to current mortgage data, the lowest variable rate available is around 3.84% so if you’re seeking to refinance make sure you do your homework and shop around. If you’re not sure about conducting your own research, then contact an eChoice mortgage broker. They can help you find the best deal for you and your circumstances.

2.  Consider fixing your home loan – If you have a variable rate home loan and rising interest rates scare you, then consider fixing your home loan. Fixed rates, at present, are low. The average 3 year fixed rate is sitting at 4.54%, but some lenders are offering fixed rates as low as 3.89%.

So with interest rates starting to climb, fixing your rate may be a good option for you. But, before you make a move make sure you consider your long-term situation. Don’t fix if you plan on moving in the near future, otherwise you may end-up having to pay hefty break fees.

3.  Learn how to budget better – Track your spending over a month. Write down everything you spend your money on from groceries to entertainment and electricity to petrol. Then work out where you can save. For instance, if you’re buying a coffee and your lunch 5 days a week then maybe it’s time to forego the coffee and to start making your lunch. A coffee typically costs around $4.50 and lunch around $10.00. This is $14.50 a day that you can save or $72.50 a week, which equates to $314 a month or $3770 a year.

4.  Review your insurances – Most of us have car, home, life and even income protection insurance. Once we’ve secured a policy, we happily pay our premium every year without even considering our options and comparing our policy to others on the market to see if we’re getting the best rate. If this sounds like you, then it’s time to grab your paperwork and to start comparing your policy to others that are on the market.

Sure reviewing your existing policies with others that are available may be time consuming, but you can possibly save yourself hundreds, even thousands per year in premiums. If you don’t have time to compare your insurance policies then contact a broker, they’ll help you.

5.  Consider paying a lump sum off your home loan – If you have funds available then now is the time to consider using them. By paying a lump sum off your home loan, you’ll reduce the amount of interest you pay and you’ll shave years off your home loan term.

6. Use home loan features to your benefit – If you have home loan features connected to your loan, such as an offset account, and you’re not using these, then it’s time to start. An offset account with a $10,000 balance in it over the term of your loan can shave up to $45,000 off the amount you pay in interest.

If you don’t have an offset account, then talk to your lender and find out how much one will cost you. Hopefully you’ll be able to negotiate a freebie.

7.  Think of your future – If you’re uncertain about interest rates and concerned about rate rises, then take action now to safeguard your financial interests. Save more by consolidating debt. Sell unwanted items and then pay this money off your home loan. Talk to an eChoice mortgage broker about your options and have a chat with your accountant. Don’t wait until it’s too late to make a move.

Want to know more about home loans? Then contact eChoice and find the right home loan for YOU today.

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