A home loan can stay with you for many years, but your circumstances and the lending market may change during that time.
Interest rates move. Lenders update their products and assessment criteria. Your income, expenses, property plans and priorities may also look different from when you first took out your loan.
For these reasons, some borrowers choose to review their home loan from time to time. A review does not mean you need to refinance. It provides an opportunity to understand your current loan and compare its costs and features with other available lending options.
If you are considering a home loan review in Perth, the following seven factors may provide useful background before discussing your current loan and available options.
1. You Have Not Reviewed Your Home Loan for Some Time
One of the clearest reasons to review a home loan is that it has been several years since you last checked it.
Home loan interest rates, fees and products change over time. Your lender may also introduce different products or pricing for new customers.
Moneysmart recommends reviewing a home loan regularly and notes that a yearly review can include comparing rates and fees and checking existing loan features.
A review might consider your:
- Current interest rate
- Comparison rate
- Loan balance
- Remaining loan term
- Ongoing fees
- Repayment structure
- Loan features
- Current lender requirements
This does not mean another loan will necessarily provide a lower overall cost. Switching loans may involve fees and other costs, so the whole lending arrangement should be considered.
2. Your Interest Rate Appears Different From Other Offers
The current interest rate is one factor that may be reviewed as part of a mortgage health check in Perth.
Moneysmart notes that home loan interest rates can vary between lenders and products. The RBA cash rate is not the only factor that may affect home loan interest rates. Lender pricing, competition and borrower circumstances may also influence the rate available.
However, an advertised interest rate should not be considered on its own.
The comparison rate, fees, remaining loan term and product features also matter. A loan with a lower advertised interest rate may not necessarily provide a lower overall cost for a particular borrower.
A review may compare the existing loan with other available options, including applicable rates, fees, features and loan terms.
3. Your Fixed Rate Is Coming to an End
If you have a fixed-rate home loan, the months before the fixed period expires may provide an opportunity to review the loan.
At the end of a fixed-rate period, the loan may move to the lender’s applicable variable rate or another rate or repayment arrangement specified under the loan terms, unless a different arrangement is made.
The interest rate, repayment amount and available loan features may therefore change.
Information that may be relevant before the fixed period ends includes:
- The variable rate that may apply
- The estimated repayment after expiry
- Available options with their current lender
- Other lending options they may be eligible to consider
- Any features available under a different loan structure
Borrowers moving to a variable rate may have access to different features from those available during the fixed period. Available features will depend on the lender and loan product.
4. Your Financial Circumstances Have Changed
The loan you obtained several years ago was assessed using your circumstances at that time.
Since then, your income, household expenses, employment, liabilities or family circumstances may have changed.
You might also be considering another property purchase, renovations or a change to the way you manage your home loan.
Current income, expenses, liabilities and other financial circumstances may be relevant to a lender’s assessment under its current lending criteria.
This becomes particularly important if you want to refinance a home loan in Australia. A new lender will assess the application using its current lending requirements.
ASIC states that responsible lending obligations include making reasonable enquiries about a consumer’s financial situation and requirements and objectives, taking reasonable steps to verify the consumer’s financial situation and, when providing credit assistance, making a preliminary assessment about whether the proposed credit contract is not unsuitable.
Having equity in your property or a strong repayment history does not by itself mean a refinance application will be approved.
5. You Are Paying for Features You Rarely Use
Home loan features may include an offset account, redraw facility and options for making additional repayments.
These features can have different costs, conditions and restrictions.
For example, an offset account is generally a transaction account linked to a home loan. An offset account is generally a transaction account linked to an eligible home loan. The balance held in the offset account reduces the portion of the loan balance on which interest is calculated, subject to the product terms. However, some loans with offset facilities may have different rates or fees from products without this feature.
Redraw works differently. It generally provides access to eligible additional repayments made towards the loan, subject to the lender’s terms and conditions.
The costs, conditions and operation of these features vary between loan products. Their relevance will depend on the borrower’s circumstances, requirements and objectives, as well as the applicable product terms and lender criteria.
A home loan review may therefore include checking whether you use the features you are paying for and how their costs compare with other available loan structures.
6. Your Repayments Are Putting More Pressure on Your Budget
Higher repayments or changes to household expenses may affect the amount of household income available after meeting loan repayments and other financial commitments.
If this occurs, the current loan and available options may be reviewed without assuming that refinancing will provide a particular outcome.
A review could look at the current interest rate, remaining loan term, repayment structure, fees and other available options. The existing lender may also have other available loan options or repayment arrangements.
Extending a loan term may reduce required repayments in some circumstances, but it can also increase the amount of interest paid over the longer term.
Moneysmart specifically cautions borrowers to consider the length of a replacement loan because extending the term can increase total interest costs.
If you are experiencing difficulty meeting repayments, contact your lender promptly to discuss available hardship assistance rather than relying only on refinancing as a solution.
7. You Are Thinking About Refinancing
A home loan review Perth homeowners undertake does not automatically need to lead to refinancing.
Sometimes the outcome may be to remain with the existing lender. In other cases, different products or lenders may be available for comparison.
Before deciding whether to refinance a home loan in Australia, consider the costs involved.
Depending on the loan and lender, these may include discharge fees, application fees, switching costs, valuation costs and fixed rate break costs. Moneysmart recommends comparing the potential savings from switching with the fees and other costs involved.
The remaining loan term is also important. Starting another long loan term may lower required repayments but could increase total interest paid over time.
Refinancing may not reduce repayments or total borrowing costs for every borrower and may involve fees, eligibility requirements and changes to loan features.
What Does a Home Loan Review Usually Cover?
A review can start with gathering information about your current loan and circumstances.
Your mortgage broker or authorised credit representative may review details such as your loan balance, current interest rate, remaining term, repayments, fees and existing features.
If other lending options are explored, additional information may be required about income, expenses, liabilities, property value and your requirements and objectives.
A review may compare the current arrangement with available options, including rates, fees, loan terms and features. Any lending recommendation remains subject to applicable enquiries, verification, preliminary assessment and lender criteria.
A Review Does Not Mean You Have to Switch
It is worth separating a home loan review from a decision to refinance.
Reviewing your loan may identify differences in rates, fees or features, but those differences need to be considered alongside switching costs, lender criteria and your circumstances.
Your existing lender may also offer another product or pricing arrangement worth considering.
A lower rate alone does not determine whether changing loans will reduce repayments or total borrowing costs. Fees, features, remaining loan term and total borrowing costs may all affect the comparison.
A periodic mortgage health check in Perth may therefore involve reviewing the existing rate, fees, loan term and features even when there are no immediate plans to change lenders.
Is It Time to Take Another Look at Your Home Loan?
Your home loan does not necessarily need to remain unchanged for its entire term.
Changes in interest rates, lender policies, loan features and your circumstances may provide reasons to review how your current loan is structured.
A home loan review may include the current interest rate, repayments, fees, loan features and available lending options. It does not mean refinancing will reduce repayments or total borrowing costs for every borrower.
If refinancing is being considered, the costs of switching, remaining loan term, available features and applicable lender criteria should form part of the comparison.
Contact FinanceCorp on 1300 410 784 or email admin@financecorp.com.au to speak with a mortgage broker or authorised credit representative about a home loan review or refinancing enquiry, current lender criteria and available options from the FinanceCorp lender panel. Any refinancing recommendation or application remains subject to applicable enquiries, verification, preliminary assessment, lender criteria and approval.
FinanceCorp is based in Cockburn Central, Western Australia, and provides credit assistance under Australian Credit Licence 395037. You can view FinanceCorp’s complaints and compliments process for further information.
Important Information
This article provides general information for educational purposes only. It does not take into account your objectives, financial situation, needs, borrowing requirements or personal circumstances. It is not a recommendation to refinance, restructure a loan, make additional repayments, access equity or apply for a particular loan, lender or credit arrangement.
FinanceCorp provides credit assistance under Australian Credit Licence 395037. The lenders and products considered depend on broker accreditation, lender panel access, the type of lending requested, the information provided and the consumer’s circumstances. FinanceCorp does not compare every lender or loan product in the market.
Interest rates, fees, comparison rates, loan features, lending policies and assessment requirements vary between lenders and may change. References to offset accounts, redraw facilities, additional repayments and refinancing approaches are general only. Their availability, operation, costs and potential effects depend on the loan product, lender requirements and borrower’s circumstances.
Examples, calculator outputs and scenarios are illustrative only and should not be relied upon as an indication of approval, borrowing capacity, repayment reductions, future savings, interest reductions or lending outcomes. Any lending recommendation or application remains subject to applicable enquiries, verification, preliminary assessment, lender criteria and approval. Loan products may also be subject to applicable terms, conditions, fees and charges. Seek assistance from appropriately licensed financial, legal, taxation or credit professionals where required.