A home loan is one of life's greatest expenses so why set and forget? An annual review can lead to significant savings.
Buying a property is one of the biggest purchases the average Australian will ever make but the cost could be significantly reduced with a home loan health check. The home loan deal you signed years ago may not be the best you can get today and reviewing your mortgage can help you take advantage of new market conditions.
Switching mortgages may reduce the amount of interest you pay and may give you access to more attractive loan features, such as lower annual package fees. Engaging an adviser to review your home loan is free and, depending on the structure of your mortgage, the amount of paperwork required is minimal compared to the potential savings you can make.
How much can you save on your home loan?
If you’re considering a review of your home loan, treat it like a tax return and do it once a year. Stafford Hamilton, CEO of Credabl
, an advisory and specialist lender that lends to medical and accounting professionals, says an annual review allows home owners to tap into market trends.
“In the current market, for example, lenders have different loan appetites and are changing interest rates and fees out of cycle, which means they are not always looking at what the RBA is doing,” he says.
A review can also present significant home loan savings. “I helped someone a couple of months ago and the annual saving was around $20,000,” Hamilton says. “This is an extreme case and involved a lot of restructuring, but the fact is that a review can help you save on your loan.”
When calculating your costs and savings, Hamilton says home owners should include the payback period. “It often costs money and time to switch lenders,” he says.
“You may need to pay another annual package fee, for example. Home owners should think about the cost of switching and how long it will take to get that money back. We help people work that out, but some people switch lenders and claw the cost back almost immediately.”
The art of the home loan deal
There are a number of factors that determine the deal you may be offered on a mortgage. These include your repayment history, credit score, age and customer loyalty. However, Hamilton says the lender’s own balance sheet also plays a role in loan decisions.
“A bank may not have an appetite for the kind of loan that you may want,” he says. “For example, APRA [Australian Prudential Regulation Authority] has been adjusting capital ratios and loan categories in the market, so some banks may not want to give interest-only loans because they have limits to manage. This can constrict their appetite for a particular loan category or profile, and it sometimes has little to do with you and your credit worthiness.
“Approaching the bank you’ve dealt with for years is often thought to offer the best chance of approval, but what if they don’t have the appetite?”
DIY or ask the experts?
Taking charge of your own mortgage review provides flexibility because you can review it whenever you choose. There’s also guidance online from sites such as ASIC’s Money Smart, which includes information about how to shop around for a better deal. However, by engaging an adviser to help with your review, you may benefit from their wide knowledge of lenders and the market’s appetite for risk.
“In the current credit cycle, the way you present and explain an application can make a huge difference to an outcome,” Hamilton says. “If there are elements of complexity, it’s worth getting help to navigate the market. With property investment portfolios being so popular, fewer and fewer people we talk to are in ‘simple’ situations.”
As with most health checks, it pays to discuss your home loan review with the professionals. “Once a year, talk to someone who has a broad market view,” Hamilton says. “Don’t just call your bank to ask what they can do for you.”
Find out more
Visit credabl.com.au/cpa for more expert advice on securing a competitive home loan that suits your needs.