Why Reviewing Your Home Loan Regularly is Crucial
Owning a home is one of life’s major milestones, but staying on top of your home loan can be equally important. In Australia, millions of homeowners unknowingly pay more than they need to because they don’t review their loans regularly. This oversight can lead to higher repayments, financial strain, and lost opportunities to save. In this blog, we’ll explore why, how, and when you should review your home loan, the risks of loyalty tax, the implications of the fixed-rate cliff, and how mortgage brokers can make the process easier.
What is Loyalty Tax?
When you first secure a home loan, lenders often offer competitive rates to attract new customers. However, as time goes on, these rates can become less favourable. This phenomenon, known as loyalty tax, means that existing customers often pay more than the rates advertised on a lender’s website. While banks roll out red-carpet deals for new clients, loyal customers are left paying higher interest rates unless they take action.
The Fixed-Rate Cliff
For many Australians who locked in historically low fixed rates during the pandemic, the fixed-rate cliff is a looming concern. As these fixed terms expire, borrowers face a significant jump in interest rates when transitioning to variable rates, sometimes more than double their current rate. This can add hundreds or even thousands of dollars to monthly repayments. Reviewing your home loan before reaching this cliff is crucial to avoid financial shocks.
Why is Regular Home Loan Review Important?
1. Save Money
A lower interest rate can save you thousands over the life of your loan. By regularly reviewing your home loan, you can identify opportunities to refinance to a better rate, reducing monthly repayments and overall loan costs.
2. Adapt to Changing Financial Goals
Life circumstances change—whether it’s a growing family, career advancement, or retirement planning. Reviewing your home loan ensures it aligns with your current financial goals.
3. Stay Competitive
The lending market is dynamic, with new products and rates constantly introduced. Regular reviews ensure you stay competitive in a market where lenders compete for your business.
4. Avoid Financial Pitfalls
Keeping tabs on your loan helps you prepare for events like the fixed-rate cliff and ensures you’re not caught off-guard by sudden rate changes or unfavourable terms.
How to Review Your Home Loan
1. Understand Your Current Loan
Begin by assessing your current interest rate, repayment terms, fees, and features. Compare these against what’s available in the market.
2. Compare Rates and Products
Use online comparison tools or speak to a mortgage broker to explore better deals. Pay attention to not just the interest rate but also associated fees and loan features.
3. Assess Refinance Costs
Refinancing isn’t free—there may be exit fees, application fees for the new loan, and other costs. Weigh these against the potential savings to ensure it’s worth the switch.
4. Seek Expert Advice
Mortgage brokers have access to a wide range of lenders and products. They can help you navigate the complexities of loan comparison, identify the best options, and even negotiate with lenders on your behalf.
When to Review Your Home Loan
1. Annually
Make it a habit to review your home loan once a year. Market conditions, personal finances, and loan terms can change significantly over 12 months.
2. When Your Fixed Rate is About to Expire
If you’re on a fixed-rate loan, start reviewing options six months before the term ends. This gives you ample time to refinance or renegotiate terms.
3. After Major Life Changes
Changes like starting a family, switching jobs, or purchasing another property can impact your financial needs. Ensure your home loan adapts to these shifts.
4. When Interest Rates Change
Significant rate changes by the Reserve Bank of Australia (RBA) can affect your loan. If rates drop, you might save by refinancing to a lower rate.
Additional Tips for Reviewing Your Home Loan
- Check for Offset Accounts: An offset account can reduce the interest you pay by offsetting your loan balance with your savings.
- Understand Comparison Rates: These rates include interest rates and fees, giving a more accurate picture of the loan’s cost.
- Beware of Honeymoon Rates: Some loans offer low introductory rates that increase after the initial period. Make sure you understand the long-term cost.
How a Mortgage Broker Can Help
A mortgage broker is your ally in navigating the complexities of home loans. Here’s how they can assist:
- Expert Guidance: Brokers can explain your options, demystify jargon, and tailor recommendations to your needs.
- Access to Competitive Rates: Brokers often have access to exclusive deals that aren’t available directly to borrowers.
- Time and Effort Saved: They handle the paperwork, negotiations, and lender communications, saving you valuable time.
- Ongoing Support: A good broker will keep track of your loan’s performance and proactively suggest reviews or refinances when beneficial.
Don’t Let Loyalty Tax Cost You—Act Now
Reviewing your home loan regularly is one of the smartest financial moves you can make. Whether it’s avoiding loyalty tax, navigating the fixed-rate cliff, or simply ensuring your loan aligns with your goals, the benefits far outweigh the effort. And with a mortgage broker by your side, the process is simpler, faster, and more effective.
Ready to explore your options? Contact us today and let’s find a loan that works for you - not your lender.
