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Review home loan arrangements: avoid mortgage fatigue.

27/01/2010

Your home loan might be the right one for you at the time you take it out, but it is important to conduct regular reviews to avoid mortgage fatigue.

Smartline Personal Mortgage Advisers Managing Director, Chris Acret, said mortgage fatigue – the feeling that after several years of dutifully making fortnightly or monthly mortgage repayments, you’re no closer to actually owning your own home – was common among many homeowners.

"Many people do a lot of homework when initially working out what is the best home loan for them, but then tend to very much ‘set and forget’,” Mr Acret said.

"Often people see their home loan as a 30 year proposition. Once the loan is in place, they really don’t think too much more about their home loan other than making the regular repayments or when changes in interest rates are announced."

"The fact is, while your home loan might be the right one for you at the time you take it out, you should review the loan regularly, as there might be a more suitable option as your circumstances change, or as new products are launched.”

Mr Acret said that contrary to the popular view that home loans are pretty boring, the home loan market is dynamic, with new innovations in home loan products and structures being released on a regular basis.

If you put your home loan in place two years ago, since that time, for example, there has been the release of a new range of offset account facilities and professional packages which may be better suited to some people’s needs.

Alternatively, it may be that a change in your own personal circumstances prompts the review.

For example, it may be that you’ve had a pay increase since taking out your home loan, which means you could afford to pay an extra $20 a week, which could reduce your loan term by about four years and save about $54,000 in interest on a $250,000 30-year loan at a variable rate of 6.61%.

An aspect that many people overlook is the structuring of their home loan. Sometimes the way the loan is structured – for example having a 100% offset facility set up effectively – can have a much bigger impact on reducing the loan as quickly as possible than the ‘headline’ interest rate.

"This is where the services of a personal mortgage adviser really come to the fore – their entire focus is on finding the right product for you and putting the most effective loan structure in place,” Mr Acret said.

"But the real X factor in this current environment is the differences in what is being offered by the various lenders. While it used to be that the banks used to match each other on rate and product features, there are now marked differences between what is on offer."

"The recent situation where some banks raised interest rates by only the same amount as the Reserve Bank – 0.25% – while others raised them by varying higher amounts is a good example of this."

"If you don’t feel like there is any light at the end of the tunnel in terms of really making inroads into your mortgage, seek advice on how you could get a lot more mileage from your home loan and have it work harder for you.”

As always, talk to your Smartline Personal Mortgage Adviser for more information.

 

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