It's natural for your financial situation to change multiple times during your mortgage. However, this could impact your repayment capability.
If you've been juggling multiple debts for some time, you're likely used to your current repayment schedule - regardless of your changing personal situation or financial circumstances.
A loan health check could be helpful for your financial state. It's a good way to see if you can make additional repayments, how much you could save by doing so, and whether now is a good time to refinance your loan.
What Is A Home Loan Health Check?
A home loan health check, also known as a mortgage health check, is an assessment procedure. It ascertains if your current loan fits your present financial and personal needs.
For example, your original loan and interest rate may have been ideal when you first took it out. However, as your circumstances change, so may your needs and priorities.
Why Are Mortgage Health Checks Important?
Frequent home loan health checks allow you to make an informed decision, which should help you save money and ultimately result in more advantages.
By changing the frequency of your repayments, you can achieve some significant interest savings on your home loan interest rate, negotiate better conditions and refinance with a different lender to access better loan features.
Frequent home loan health checkups already provide several advantages.
Pay Off Your Mortgage More Quickly
Home loan health checks reveal workable possibilities for you to pay off your mortgage more quickly and get out of debt. Additionally, you can identify locations where you can accumulate equity in your house that you can access in the future.
Helps In House Renovations And Encourages To Buy A New Investment Property
With home loan health checks, you can correctly calculate how much equity you have in your home. As a result, your property's worth could have improved if you've built up enough equity, enabling you to use the equity to finance home improvements and renovations or even purchase a new investment property.
Provides Access To Home Loan Features
Several features are regularly offered with new home loans. However, some of these may have been available later. Therefore, it's critical to compare various loan kinds to find out which ones have the features that best suit your requirements.
Obtain More Affordable Interest Rates
In Australia, interest rates are constantly adjusted. As interest rates continue to rise, it's even more essential to regularly review your home loan with your mortgage broker.
As a result, you can make extra repayments to be on top of your mortgage sooner. You could also consider refinancing to a lower interest rate and package that won't break the budget.
Change To A Loan That Better Suits Your Current Needs
When you originally took out your loan, it may have been perfect for what you needed. For example, you may have preferred variable loans to take advantage of lower repayments in the short term when you first started your mortgage. But as time goes on, you may feel more comfortable with the stability of a fixed rate term.
Who Should Do A Home Loan Health Check?
Home lending specialists and mortgage brokers regularly launch new loan products. You may get a better interest rate and save money by performing a home loan health checkup to see if you can find a better deal than your current one.
You should also review your home loan if you are:
1. First Home Buyer
If you're a first home buyer, it's essential to review your home loan features from time to time and see how it works. Check that the interest rate is still competitive and that you get all the benefits and features you were initially promised. Further, identify if these features are still relevant or if you have changed your circumstances.
Also, assess if you can comfortably make your repayments. If not, exploring your options and reducing financial stress is essential. Your home equity position will have changed, and as a result, you may now have access to products such as an offset account or redraw facility.
Finally, a loan health check can help you assess your financial goals and whether you are on track to achieve them.
2. Owner Occupier/ Home Owner
Doing a home loan health check can help you understand your ability to make early repayments and your lender's policies.
You will also be able to determine if you should opt for a split loan or convert from a variable to a fixed rate based on the economic scenarios, for example, rising interest rates. You'll also get to know your LVR and if you have sufficient equity to make additional repayments.
Likewise, the loan health check will help you decide if debt consolidation or refinancing your loan structure matches your property goals, for example, home improvements or purchasing an investment property.
Reviewing a home loan is critical for investors to understand their property's present capital growth and rental income.
It will also throw light on property potential based on developments in the suburb, if home improvements are required, and how would each of these factors impact your mortgage.
How To Do A Home Loan Health Check?
A home loan health check is a wonderful way to ensure your mortgage still fits your needs and is still the best option. Here is an easy DIY guide.
Step 1: Assess Your Home Loan
To determine the health of your mortgage, start by analysing your interest rate. Moving to a loan with a lower interest rate can reduce the burden that your mortgage obligations are bringing you.
Step 2: Reflect on Your Financial Circumstances and Goals
Suppose you have received an increase in salary or new assets that could help them make additional payments. Making additional repayments helps speed up debt repayment. While making smaller monthly payments will save you money in the short run, paying more toward your mortgage can result in enormous savings in the long term.
On the other hand, you could consolidate your debt if you have taken on new debt since you got your mortgage. This will help you save money in the long term by having a lower interest rate overall.
Step 3: Calculate Mortgage Costs and Fees
Furthermore, you could be paying high costs for your mortgage. Regular home loan expenses, such as yearly and monthly service charges, redraw and offset fees, and late payment penalties, can significantly raise the overall cost every year. In addition, if you pay off your current loan early, you may also be subject to discharge and early exit fees.
Find out the length of your first fixed term. If you know that your fixed-term loan is about to expire, you should make plans to switch to a cheaper variable rate while considering the potentially high break penalties.
Step 4: Figure Out the Current Property Value
If the value of your property has improved, you will have more equity in it and be able to sell it for more money, but if the value of your property has decreased, refinancing may be more difficult. This is due to the possibility that your loan-to-value ratio (LVR) has reduced to the point where you don't have sufficient equity for a 20% deposit.
Doing a property valuation will help you understand the current value of your property.
Step 5: Identify Potential Home Loan Features
Your present mortgage may not have desirable features, such as offset or redraw capabilities, additional and lump sum repayments, top-ups, and more if it is a basic loan. These have a significant financial impact on your overall saving.
Depending on your requirements, you could shift to a loan offering these characteristics but packaged better rate. Alternatively, you could move to a less expensive loan, which does not include these features.
Step 6: Evaluate Your Options
After doing all your research, it's time to compare home loans and find the best deal that suits your needs.
If you're planning on small-scale remodelling or extensive renovations, you could access the equity in your home.
A home loan health check will help you determine your options, whether to apply for a construction loan or use a line of credit by leveraging your equity.
If you're considering selling and moving or want to add an investment property to your portfolio, you may use this equity as a down payment on a new home.
Refinancing for a better rate, increasing repayments, and fixing your home loan are some options that can save you money and make your mortgage work better for you.
Seek Profession Help
If you're unsure about any aspect of your home loan health check, seek professional advice for a comprehensive view of your financial condition and objectives. You may have to provide the specialist with details of your property and your recent home loan and bank statements.
They will try to understand the nature of your loan requirement and give you useful advice on moving forward.
When Is The Best Time To Conduct A Home Loan Health Check?
Many consumers find the terms, features, and abundance of mortgage choices intimidating. As a result, homeowners sometimes put off reviewing their mortgage because they need clarification on how it is set up and how to use the features and benefits offered.
The general advice is to perform a home loan health check every year or every 2-3 years. If not, then you should try and run a mortgage health check at least once in five years.
The best time to do a home loan health check is when you're considering topping your current loan, planning renovations or making extra repayments. It's also ideal to do a loan health check when you want to buy an investment property, lock in or reduce your payments.
In any case, you'll most likely have to do it on the expiry of your fixed-rate or one-off mortgage deal term.
Experts also advise you should definitely track the monthly cash rate announcements by the Reserve Bank of Australia (RBA).
It may be scheduled to coincide with other dates, such as your tax filing or the beginning of the school year. The goal is to tie it in, examine it, and pay your loan faster!
No Matter Your Results, Joust Can Help!
If you've recently done a health check, aren't happy with your home loan, or want to explore refinancing options, we're here to help!
Joust's Instant Match tool can assist you in finding home loan solutions and a better interest rate depending on your unique profile matching your requirements.
We can help you potentially save thousands of dollars through our open and transparent competitive approach, whether it is for a new home loan or refinancing purposes.
Note: The information in this article is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.