Review Your Mortgage
One of the most significant financial commitments many of us make in our lifetime is taking out a mortgage. Whether you’re a first-home buyer or a seasoned homeowner, the terms and conditions of your mortgage can greatly impact your financial stability and long-term goals.
In this blog post, we will consider the importance of reviewing your mortgage, key aspects to consider, and tips for navigating the process effectively.
Understanding Your Mortgage
Before starting the process, it’s important to have a clear understanding of the mortgage terms. A mortgage agreement has conditions including the loan amount, interest rate, term length, repayment schedule, and any additional fees. Take the time to review and understand these conditions as it will assist in the review process.
When you initially take out a mortgage, it’s normal to focus on securing the loan and getting the keys to your new home. However, over the years, your financial situation and the broader economic conditions may change. What was initially suitable when you took out the loan a few years ago may no longer be the best fit for you today. This is why it’s important to understand the details of the mortgage agreement.
The interest rate, whether fixed or variable can have a large impact on how much you pay over the life of the loan. A fixed-rate mortgage can offer stability, but if rates drop then, you may miss out on potential savings. A variable rate fluctuates and depending on the market conditions can be a good or bad thing.
Another important aspect to consider is the loan-to-value ratio (LVR), which is the amount of your loan compared to the value of your home. If property values in your area have increased since you took out the loan, your LVR may have improved. Depending on the lender this may qualify for better terms or lower interest rates.
Assessing Your Financial Situation
The next step in the review process is to assess your current financial situation. Has there been any significant changes since the loan commenced? For example, salary increases, change in jobs, children, or unexpected expenses. Understanding your financial position will help you determine if your current mortgage still suits your needs or if adjustments are required.
A financial position is not static, and it’s the same for a mortgage strategy. For example, if you have received a salary increase you may be in a position to increase mortgage repayments, reducing the overall term of the loan and saving on interest. In comparison, if you have experienced a job loss or reduction in income, it would make sense to review the terms of the mortgage to ease financial pressure.
Considering future financial goals and how a mortgage fits with these is important. For example, if you are planning to retire soon, have you considered how to pay off the mortgage to align with the retirement goal.
Interest Rates and Market Conditions
Interest rates play a significant role in the overall cost of the mortgage. The interest rates offered by banks will vary depending on the lender, borrower, and loan terms. Staying informed of changes in interest rates is important and will help to maintain a competitive interest rate over time.
Interest rates are influenced by various factors including economic conditions and central bank policies.
It’s important to stay informed about rate changes. If you have a variable loan, and rates rise you may have a rise in repayments. Conversely, when rates drop, you may benefit from reduced payments.
For fixed rate mortgages it is still important to monitor the rate changes. When the fixed rate period comes to an end, you will need to consider whether to fix again or move to variable. Each option has pros and cons, and the best option will depend on your financial situation, goals, and the market conditions at the time.
Loan Term and Repayment Options
The length of the mortgage will affect both the repayment amount and the total amount of interest paid over the life of the loan. It’s beneficial to review the current term and consider if this still aligns with your financial goals. For example, if the goal is to repay the loan prior to retirement, do the current loan repayments allow for the loan to be repaid in the desired timeframe? Shortening the loan term can help to save on interest and pay off the mortgage sooner, however, this can result in a higher payment, impacting cash flow.
Fees and Additional Charges
In addition to the interest rate and loan term, be mindful of any fees or additional charges on the mortgage. These may include account-keeping fees, offset facility fees, redraw fees, or late payment fees. Reviewing the mortgage terms, to ensure that you understand the full cost of borrowing and consider ways to minimise fees where possible.
It is also important to be aware of discharge fees and early exit fees if you plan to pay off the loan early or switch lenders. These fees can sometimes negate the benefits of refinancing, so it’s important to calculate the total cost before making any decisions.
Consulting with Financial Professionals
Seeking professional guidance from financial professionals such as mortgage brokers and financial advisors can assist in the process. These professionals can provide personalised advice based on your specific circumstances and help you to make informed decisions about your mortgage.
Mortgage brokers can be valuable, as they can have access to a range of lenders and products. They have the ability to compare rates, terms and conditions between different lenders to help with options and to find the best fit for your situation. Further, brokers are familiar with the application process and can help to navigate, prepare paperwork, and save time and effort with the process.
Reviewing your mortgage is a critical step in managing your financial well-being. By understanding your mortgage terms, assessing your financial situation, keeping an eye on interest rates and market conditions, and consulting with professionals, you can ensure that your mortgage continues to meet your needs and supports your long-term financial goals. Regularly reviewing and adjusting your mortgage can lead to significant savings and a more secure financial future.
After working as an advisor for a decade, Joel founded Unified Wealth.
Unified Wealth specialises in helping clients who are facing life’s big decisions.
Whether you’re contemplating your first property, growing your family or starting your investment journey we can help you focus on the simple steps to help you make your goals reality.
Our priority is making sure you have all the right information available to make the best possible decisions for you and those you love.