Throughout the life of a mortgage people’s situations do change. As a result it is always wise to get a ‘health check’ on your mortgage to see it is still relevant to your circumstances and up-to-date.
While your mortgage lender can perform a thorough analysis on your mortgage to assist you in determining if your current home loan is still the most suitable option for you, Managing Director of Australian Mortgage Options (AMO) Robert Projeski suggests a few health checks of your own:
1. Do I need the features I have?
You secured your home loan with all the bells and whistles, from a line of credit to a cheque book feature. Years into the loan, you should ask yourself: “Do I really use all of these features?”
Having a variety a features may have given you peace of mind at the time you took out the loan, but it may dawn on you that some or even none have been really utilised. You may pay your loan by direct debit and have never written a cheque over the entire time you have held the loan.
These features can come at a premium price so it is well worth asking just how necessary they are. To covert to another product with your existing lender can cost from zero to around $150.
2. How has my life changed?
Have your personal circumstances changed considerably from the time you originally took out the loan? You may have started a family which has increased your day to day living expenses, making repayments more difficult. Conversely, you may have kick started a new, better paying career or been promoted in your existing company. You may have been a self-employed contractor who is now in a full time position, which is seen more favorably by lenders.
Whatever your circumstances were in the beginning, they probably determined the loan product you have. How suitable is your loan now, and are you still paying more for a life you no longer lead?
Your lender should have products that not only suit your current needs but are adaptable to suit your changing needs. Investment purchases, refinances and increases should be a simple process with your loan.
3. Have I had an updated valuation?
If you had maintained your existing loan for several years it would be in your best interests to get an updated valuation because over the years there has been some significant capital growth across Australia.
Up to 2004, across the board there were significant increases in areas across the country so it might be wise to get an updated valuation and see if you have equity there and how much. You work very hard to earn your money and to fulfill the obligations of your loan. Why not see if you can extract some of that equity and have it working smarter for you? Equity in your home can be used for household renovations, investments and other lifestyle considerations such as an overseas holiday.
4. Am I happy with my existing service?
Over the term of your loan, has the service provided by your lender all that you hoped it would be? Have their response times and their quality of their response been satisfactory or are you ultimately disappointed? How committed have they been to addressing any issues that you have had over the term of your loan, and have they delivered what you consider to be a genuine effort to find a solution to those issues?
Your home loan is the biggest investment you are likely to make. Your relationship with your lender should should reflect that commitment and be a mutually beneficial one. If it isn’t you need to start asking questions.
5. What’s the frequency of my repayments?
Your mortgage repayments may be paid on a monthly basis. Is this in sync with the frequency you are paid your wage? You may be paid weekly or fortnightly. If this is the case you should be making your mortgage repayments weekly or fortnightly.
The benefit is that interest on your loan is calculated on a daily reducible balance which means interest is calculated every day. The more money you have parked for that particular period the lower your balance.
Calculations are run at the end of the month when interest is debited to your account so therefore you pay less interest if frequent repayments enter your loan account.