What is a Mortgage Health Check and why should you bother? Hint: you could be saving more money than you think.
Most people believe that once they’ve purchased their home and set-up their mortgage repayments, they are at the mercy of their lender. They accept rate changes as they occur and absorb fees and charges without thinking twice.
Although it’s likely their biggest monthly expense, most people tend to only scrutinize their mortgage when something significant happens, such as being fed up with their lender, looking to sell/buy/invest, or their lifestyle changes with the addition of a baby or a change in job.
But a check-in every two years can help you make sure your mortgage is up to date and you’re paying the correct rates, fees, and charges, you have access to the right services to meet your ongoing needs and objectives.
Why get a Mortgage Health Check?
Reduce your interest rate— interest rates are continually changing and fluctuating, you could be paying less and there’s no more compelling reason to look into your mortgage.
Reduce fees and charges— just as important as checking you have a competitive rate is making sure you’re getting a competitive offer on your fees and charges and you’re only paying for services and features you actually use i.e. offset fees or linked credit card fees
Understand your current financial position— a Mortgage Health Check will help you understand what funds you have available and what your options are. Can you upsize to a larger home, renovate where you are now or access funds for other purposes? Or would it be prudent to downsize and reduce your Loan to Value Ratio and access associated discounts?
Avoid reverting to higher rates when your term is up— if your fixed rate loan period is expiring you may be automatically moved to a prescribed or market rate and miss out on discounts you don’t know about.
Access more options and flexibility— you may benefit from different features, services and options now than when your mortgage was drawn including offsets, credit cards, redraw facilities, professional packages and access to a private banker.
Unlock hidden equity in your mortgage—
Improve your lifestyle (purchase a new car or holiday)
Fund renovations or home improvements
Consolidate other debts to improve your cash position
Purchase an investment property
Purchase other investment classes such as shares and managed funds
Invest in your children’s education.
Respond to changes in your personal circumstances—
Change in job (promotion, apprentice to qualified, self employed, redundancy or job loss)
Marriage, separation or divorce
Children (reduced wage as a result of maternity leave, costs associated with pregnancy)
Received a lump sum (bequeathed, gift, redundancy, pay-out)
Get better service— if you are experiencing frustration with your current lender moving interest rates, increasing fees or not meeting your expectations on customer service it’s time to move on.
Consolidate debts— in some circumstances consolidating your debts into a lower rate mortgage (impairments, credit cards, car loans, personal loans, investment loans) can reduce the overall outgoings and free up personal cash flow.
Renting out— if you are planning to rent out your principle place of residence (home) and convert it into an investment it’s wise to make sure your mortgage is a best fit for this move.
Before you make a change
Make sure any decisions you make about your mortgage align to your overall financial goals and objectives.
Understand your current mortgage position (interest rate, term, minimum repayment, actual repayments, available for redraw, savings held in offset, fees, and charges).
Calculate the % of your mortgage payments (minimum and actual) compared to household income.
Prepare a household budget to understand current levels of discretionary and essential spending.
Consider the costs associated with moving your mortgage as part of the decision making process. Look for:
Break fees on existing loan
Interest Rate (advertised) and Comparison Rates (advertised rate plus fees and charges)
Set-up costs on new loans which can include brokerage fees and application fees
Valuation fees (some banks will pass on home valuation costs to the customer)
Don’t forget the effort and time to swap banks (including moving direct debits and setting up BPAY for bills).
What are you looking for in a new or updated mortgage?
When selecting the right product, there are questions you can ask yourself to ensure you choose one that will meet your needs.
Some of the questions you need to consider
Are we able to:
…. make extra or additional payments on our loan without penalty?
…. redraw on funds available within mortgage account?
…. take a repayment holiday (Christmas, holiday, baby, circumstance)?
…. fix the interest on all or part of your loan (predictability in your repayments)?
…. take an interest only loan for a period to reduce payments?
…. store savings in a mortgage offset account (reducing interest paid on the mortgage)?
Before refinancing your mortgage to a more competitive product, you should discuss and agree on some short, medium and long-term objectives.
Short term
Do we have an agreed household budget?
Are we paying enough into our home loan, are we paying too much into our home loan?
Are we financially better off consolidating other debts?
Medium term
Are we looking to use equity to invest in other asset classes (property, shares, funds)?
Are there other ways to save money?
Are we saving enough?
Long term
When are we aiming to be debt-free?
Do we want to own multiple properties?
Should we consult a financial planner regarding retirement?
A Mortgage Heath Check will help you align your goals, ensure you only pay for services that you use and importantly can save you thousands of dollars over the life of your loan, with the ultimate goal of owning your home sooner.
If you are considering a detailed Mortgage Health Check contact Brock to arrange an appointment.