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Home loan wisdom: Why is a yearly mortgage review so essential

By Michael Walkden

HOME LOAN WISDOM: WHY IS A YEARLY MORTGAGE REVIEW SO ESSENTIAL?

In April alone Australians held close to $1.28trillion in residential mortgages with New Zealanders coming in at $277billion.  With an average loan value over $600,000. We can be fairly certain that a significant proportion of those home loans haven’t been reviewed for years.

Why does that matter? Because as your lifestyle, priorities and the market change, and as they do your home loan gets left behind. If too much changes and you don’t review your home loan it may become unsuitable and end up costing you a great deal of money.  With the average age of first getting on the property ladder constantly rising, reviewing your home finance arrangements could also determine whether you retire mortgage free or not.

Avoiding unnecessary overpayments could be as simple as conducting a yearly home loan review with your mortgage broker and refinancing if necessary.

MODIFY YOUR HOME LOAN AS YOU CHANGE

Look back on your life 2, 3 or 5 years ago. Have you changed? Perhaps you’ve switched careers, gotten a big promotion or decided to take more time off work to focus on family and longer holidays. Or maybe you’ve gotten married and welcomed a little one into your home. Perhaps you’ve decided to run away with Cirque de Soleil and become an interpretive fire dancer.

Whatever you’re up to it’s absolutely vital that your home loan is suitable. If you’ve been promoted or come into some money you may want a more flexible home loan so that you can make extra repayments.

If you’ve had a baby or gotten married, a redraw facility may be ideal, as it will allow you to take equity out of your property to make essential purchases.

The point is that your loan’s feature must be adapt with you. Every loan is not created equal and a better suited loan means less stress, fewer repayment struggles and perhaps even less interest and fees.

ADAPT YOUR MORTGAGE TO THE MARKET

If you haven’t refinanced your mortgage in a while, there’s a good chance you’re paying more interest than you should be. That’s because the Reserve Bank of Australia (RBA) has been steadily dropping the cash rate since late 2011 when it was at 4.75 per cent.

The rate now sits at an all time low of 1.5 per cent and major lenders have followed the RBA’s lead offering home loans with near record low interest rates. If you took your mortgage out a year or more ago,  refinancing now could save you money.

On the other hand, you should also consider the future outlook when shopping for home loans. Finder recently conducted a survey of leading Australian economists, 80 per cent of whom predicted an RBA rate rise as soon as July 4 (the next meeting). With a yearly mortgage review, you can take into account the outlook for the future and make sure that your home loan is well suited for what’s to come.

If talk of interest rates and refinancing sends you half to sleep, you’re not alone. But the fact is ‘following’ or ‘keeping an eye on’ the market, and making sure your loan is perfectly suited by reviewing it every year could save you thousands or more. There’s nothing boring about that.

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