In this second part of our 10 Point Mortgage Health, we discuss final points to consider to see if your home loan it is still relevant to your needs, lifestyle and financial situation.
6. What’s the cost of redraws on my mortgage?
Does a redraw on your current mortgage cost you? Some lenders allow a redraw facility at no cost, some don’t and charge you fees for doing so. Make sure you have a product that allows unlimited withdrawals at no cost.
Some lenders charge in excess of $20 per redraw, so if you are doing 4 or 5 of them a month, this can represent .025 to 0.5 per cent on top of your actual interest rate.
A redraw facility allows you to make additional repayments on your mortgage, and access to the additional repayments if you need to so it is a handy feature to have. Find out if you are paying for the privilege.
7. What loans are on offer?
New home loans constantly become available as lender’s work hard to attract borrowers in every climate. Loan products have changed markedly over the past 20 years; originally it was a monthly repayment from the actual bank’s savings account which you were forced to open. Things progressed to fortnightly, and then weekly.
The mortgage industry matures and evolves constantly which means lenders are often forced to play ‘catch up’ with some of the new products being introduced. This competitive market place can only be good for the borrower.
It could be in your best interests to refinance with another lender, but review your own lender’s products as well. They may not consider it an obligation to alert you to a cheaper or more suitable product they’ve introduced.
Spend an hour of your time to look around on a regular basis. That hour could save you thousands.
8. Is my interest rate competitive?
Interest rate alone is not the only consideration for choosing a loan and invariably the more flexible the loan, the higher the interest you will pay. Features must be a priority consideration but it makes sense to check that you’re not paying more for a product than you should be. Always compare loan products with the same features when looking for the best interest rate. There is always competition between lenders to offer the lowest rate so you may not have the cheapest rate anymore. Before you convert to a lower rate, make sure break costs don’t negate the supposed financial benefits. In some cases, you’ll be better off doing nothing.
9. Does my home loan contain ongoing fees?
When comparing the cost of different loans, don't just look at the interest rate, look at the 'total cost of borrowing'. Ongoing fees can include account keeping fees, fees for taking money back out of the account, monthly fees and annual review fees. Some lenders may claim to give you a discount on the interest rate while charging a monthly fee for some fairly standard privileges to offset giving you that rate reduction.
Weigh up the effect of any ongoing costs. Ongoing monthly and annual fees can affect the true cost of your loan.
10. Am I penalised for making extra mortgage repayments?
Sometimes traditional fixed rate loans aren’t very flexible and there can be penalties involved if you make substantial lump sum repayments. Other products let you to make additional repayments, allowing you to repay your mortgage before the end of its term. Off-set accounts, lines of credit and a redraw facility can all help you pay off your loan sooner. Some lenders now have access to a product which can offer you the best of both worlds. That is fixing your loan whilst maintaining the benefits of a flexible product. These can be great features to have if you come into some extra cash and can effectively pay off your home sooner.