Are you thinking about taking that next big step in your life, such as getting married, having a baby or chasing a promotion? If you already have a home, and are considering any of these lifestyle changes, it is important to consider the impact these decisions may have on your financial situation.
As your lifestyle needs evolve, so too may your home loan needs. By adapting your home loan to suit your current lifestyle needs and taking full advantage of any loan features available, you can be sure that your loan will keep pace with your lifestyle.
For example, if you are looking to start a family and seeking to lower your loan repayments for a set period of time you could consider switching to an interest-only loan. On the other hand, if you receive a promotion you may decide to contribute extra funds to an offset account attached to your loan to reduce the overall interest payable and to build a financial buffer for future.
In any case, a home loan health check would be a timely choice for borrowers who are embarking upon major lifestyle changes.
Following is a list of tips to help ensure that your loan is as flexible as the lifestyle you lead:
Keep your lender in the know – When your financial circumstances change, be sure to 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 be able to 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.
Make the change – 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 switching to an interest-only loan. This will allow you to make use of 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.
Fix it – If repayment certainty is top of mind due to budgeting constraints, out of choice or necessity, you might consider fixing part, or all of your home loan’s interest rate. Generally, fixed rate loans aren’t as flexible as variable rate loans 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.
Use your savings to your advantage – 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 consider combining them into your home loan, and repaying 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. This strategy should be investigated thoroughly. To pay off your debt sooner, make more than the minimum repayments.
Call Suzanne, Owun or Costa in the office on 02 9517 1818, or email firstname.lastname@example.org to discuss your options. Or, if you feel like dropping in at our office, we are located at Suite 106, Flourmill Studios, 3 Gladstone Street, Newtown 2042. Be sure to share our blog on Facebook and Twitter and let others join the conversation!