Lately, it seems that the cost of everything is forever increasing, further tightening the family budget.
One of the largest expenses in most households is the mortgage, where it seems every month mortgage holders are receiving notification of interest rate and repayment increases.
So, what can you do?
There are several options available.
The first is to speak to your current home loan provider. See if you can negotiate a better rate. Some lenders will give existing customers discounts on interest rates to retain their lending.
Review your home loans
Is the loan you have in place the best product for you or do they have a better option? Are you taking advantage of all the additional add ons or are you better off having a basic home loan with a lower interest rate?
Are you considering whether to fix all or some of your home loan? If so, you should consider your future plans. Fixed-rate home loans will often restrict how much extra you can pay off your loans as well have additional costs if you wish to break a fixed-rate home loan.
Considering refinancing
It is important when refinancing to take into consideration not just the advertised interest rate but other costs.
The best way to compare home loans is to ask for key fact sheets from different lenders. A key fact sheet will provide you with all the information you need in a set format. It will tell you the total amount to be paid back over the life of the loan, as well as the repayment amounts, fees and charges. It will also give you a personalised comparison rate that will help you check the total cost of a loan compared to other loans. Credit providers must give you a key fact sheet for a home loan if you ask for one – unless you are opting for an interest-only or a line of credit loan.
Compare the comparison rates of the loans. A comparison rate includes the interest rate as well as certain fees and charges relating to a loan. The comparison rate aims to help you identify the true cost of a loan and compare loans and services offered by financial institutions and mortgage providers.
Leaving your current provider will incur fees even if your home loan is not fixed. Exit fees are charged by the lender when a borrower ends the loan or refinances to another lender. Exit fees were banned on new home loans from 1 July 2011 by the Gilliard Government, but not all types of exit fees were impacted by the ban (i.e. discharge fees remain, as do break fees that relate to early repayment of a fixed rate component of a loan). Exit fees can be in the form of fixed-rate break costs, discharge fees, or early exit fees.
As with any major financial decision, there will be an impact on your financial goals. It always pays to discuss these types of decisions with your Adviser.
Katrina Dhu (GradDipFinPlan, DFS(FP), ADFS[FP]) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Any information provided to you was purely factual in nature. It has not been taken into account your personal objectives, situation or needs. The information is objectively ascertainable and is not intended to imply any recommendation or opinion about a financial product. This does not constitute financial product advice under the Corporations Act 2001 (Cth). It is recommended that you obtain financial product advice before making any decision on a financial product such as a decision to purchase or invest in a financial product. Please contact us if you would like to obtain financial product advice.