Do you actively keep an eye on your mortgage? Or do the funds just disappear out of your account each month without another thought?
Reviewing your mortgage is an essential part of managing your finances.
Over time, your situation might change, along with the offers that lenders are making. What worked for you 5 years ago, might not suit your lifestyle now. The set and forget method only works for so long.
So let’s look at why you should review the structure of your loan, how your plans can impact the kind of mortgage you have, and how to ensure you are getting the best deal.
Why You Should Review The Structure Of Your Loan
You should really be reviewing the structure of your loan every year.
Why so often?
It is so you can ensure the structure still fits in with your goals and objectives. There are a couple of options you can choose from depending on your financial situation. You can choose to make the minimum repayments over a longer term. That will allow you the day to day cashflow to meet your other financial commitments. Or you can choose to make higher repayments, which will clear your debt quicker and reduce the amount of interest you pay.
You should also look at fixed and floating options. Fixing your mortgage at a set interest rate with regular repayments can allow you certainty and makes budgeting easier. Whereas a floating rate will give you the flexibility to make extra repayments if you have spare funds available.
The term of your loan is the final thing that you should look into. If you can reduce the term of your loan then you will reduce the overall amount you will pay for your mortgage.
For example, if you took a $500,000 loan with an interest rate of 4.5% over 30 years, you would end up paying $412,000 in interest. However, if you took the same loan over 25 years, you would pay $333,000 in interest. Pretty good savings right?
How Your Plans Can Impact Your Mortgage
When you are in the review process, it is important to consider what your plans are for the future. Are you planning to stay in the home long term, do you intend to sell soon, do you have other loans, or are you wanting to purchase an investment property?
Knowing what your plans are can help a financial specialist make the right recommendation for your mortgage structure. If you were intending to sell soon, then it might beneficial to only fix your loan for a short term or to leave it on a floating rate. However, if you were going to stay in the home long term, you could benefit from the security of a set interest rate for a longer term.
Your mortgage should always be structured in line with your goals and your life stage.
While reviewing, consider your short term debts. Any credit card debt, purchases made on finance, or personal loans could be consolidated into a top up on your mortgage. You could opt to keep the term as it is or extend it, depending on what suits your financial position better.
Ensure that your current lender is still the most suitable provider for you. Are their offerings still in line with your goals, and do they still supply you the right products, such as an offset account? Perhaps you are currently with a second tier lender and you might be in a more equitable position now. That may allow you to go in with a first tier lender and potentially shave 2% off your interest margin.
These are all things that you should review on an annual basis. But all of this jargon can be confusing, not to mention time consuming. And you want to ensure you are getting the best deal right?
How Can You Ensure You Are Getting The Best Deal?
If you had legal queries, you would speak to a lawyer. So why would you try and DIY something important like your mortgage?
Allowing a Mortgage Adviser (like one of the team here at Mortgage Link) to review your current loan could save you thousands of dollars in the long term.
People’s circumstances change all the time. An adviser can give you specific advice on how to suit your own individual position. We have relationships with all the major lenders and understand the available products on the market.
Get in touch with us today to check if there is a better way to structure your mortgage.