May 22, 2012
You have a home but now your sights are set on the next big step, such as getting married, having a baby, switching jobs or chasing a big promotion. As your lifestyle goals change so too do your home loan needs.
Any substantial changes to your financial situation make a home loan health check a timely choice, according to Australia's largest independently-operated mortgage broker, Mortgage Choice.
Company spokesperson Belinda Williamson said, “Australians are typically an ambitious bunch when it comes to purchasing property. A number of major lifestyle changes are certainly not going to stand in the way of many achieving their dream of outright home ownership, so it makes sense that today's home loan products are as flexible as the lifestyles we lead.”
“Home loan products are built to withstand all kinds of borrowers' major lifestyle changes, such as getting married, starting or growing a family, moving up the career ladder and retiring.”
“Borrowers have the flexibility to tailor their home loan to their lifestyle and needs, and they can use a loan's features to their advantage, particularly during times of considerable change.”
“For example, borrowers who are seeking to lower their loan repayments for a set period of time when starting a family could consider switching to an interest-only loan. Conversely, a borrower who gains a promotion may decide to contribute extra funds to an offset account attached to their loan, which will help to reduce the overall interest payable and to ensure funds are stocked up in case of times of need.”
“The home loan options available are a far cry away from a couple of decades ago when loans were basic finance products over a 30 year loan term, there were few lenders to choose from and no mortgage brokers to help them through the process, and borrowers had limited repayment options.”
“Nowadays borrowers have a wide range of lenders and flexible loan options to choose from. Adapting your current loan to suit your changing lifestyle and financial needs can often just be a matter of contacting your local mortgage broker for a regular home loan ‘health check'.”
Mortgage Choice has compiled tips for borrowers embarking upon major lifestyle or financial changes:
Keep your lender in the loop – When your financial circumstances change, advise your lender or talk to your mortgage broker. If you've received a windfall, you may be able to increase your repayments and/or make better use of your loan's features to repay the debt sooner. On the other hand, if you need some leeway, your lender may suspend your repayments for a set period or restructure your loan/s to lower repayments. Keep in mind this can draw out your loan term, meaning extra interest will be owed in the long run.
Consider an interest only loan – If you are looking to lower your loan repayments for a set period of time to alleviate pressure or to use your funds in another way, you may consider an interest-only loan. These offer most of the same features as principal and interest loans with the benefit of lower monthly repayments. You are not obligated to repay the principal loan amount during the interest-only period, but you have the flexibility to.
A fixed rate may help fix it – If repayment certainty is top of mind due to budgeting constraints that you need or that you want, you may wish to consider fixing part, or all of your home loan's interest rate. Generally, fixed rate loans offer fewer features and there may be a fee payable if you choose to exit a fixed rate loan before the end of the loan term. Keep in mind interest rates tend to vary over the life of a loan so do your research.
Build a buffer and make your savings work for you – If possible, make over and above the minimum home loan repayments to build a ‘buffer' for unforeseen or expected lifestyle changes. These extra funds could be kept in a home loan offset account to ‘offset' the interest payable. If you need to access these funds, keep in mind some lenders have a minimum redraw amount and may charge you a fee each time.
Rolling your repayments into one loan – If you have several debts via credit cards and/or personal loans, etc. at high interest rates you may combine them into your home loan, and repay them at the lower, home loan interest rate. Keep in mind the debt will be stretched over the home loan term and may increase the interest owed over the long term. To pay off your debt sooner, make more than the minimum repayments.
For further information or to arrange an interview, please contact:
Mortgage Choice Corporate Affairs
(02) 8907 0472 / 0407 416 124