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When to review, re-fix, or refinance – and why you should

A mortgage is a big deal – 25 or 30 years of payments and hundreds of thousands of dollars in debt. Although it is a huge commitment, what many people don’t realise is that you can make changes – and even switch lenders – during the term of your mortgage. You aren’t stuck with your original loan forever.

You can refix your mortgage at a different rate, change the structure of the loan so you pay it off earlier, or even refinance with a completely new lender to take advantage of a better deal. Seemingly simple changes could save you thousands over the term of the loan, so, with the help of an expert mortgage adviser, it’s worth taking the time to really look at your options.

But when should you think about reviewing or changing your loan? Every new year? When your circumstances change? When interest rates change? When your fixed-rate term is about to end?

Here are some of the best times to take a look at your home loan:

Your fixed rate is about to end

Home loans can have a fixed or floating interest rate for the entire sum or a mix of fixed and floating rates for different amounts and different terms. If one of your fixed rates is about to expire, it makes sense to review your loan and your rates at the same time.

You can take the opportunity to choose another fixed-rate period for the loan, or split the loan into a range of variable and fixed periods. Or, you might choose to restructure your loan entirely – if rates have dropped, you could choose to shorten the term of your loan and pay it off faster without increasing your repayments. Generally, if you do nothing, your loan will roll over to the standard variable interest rate, which may or may not be the best rate available.

It’s New Year

New Year is a natural time to examine your budget, your debt, and your finances in general – and this includes your home loan. You might want to make changes to help pay off your mortgage faster or because something has changed in your circumstances. Although it’s a good idea to go over your finances, it’s not strictly necessary to do a formal mortgage review every single year.

Interest rates have changed

Even small drops in interest rates can make a huge difference in the long term. If there’s a noticeable dip in rates compared to your current rate, it could be worth trying to refix at the lower rate. Better rates can also be a reason to switch lenders – also known as refinancing. This means paying off your loan with your current lender by taking out a new loan for the whole amount.

When you refix or mortgage refinance, you may be charged break fees. Although these fees can be high, the savings you make over time by switching to a new rate could make up the cost. Make sure you talk to an expert before you make any drastic changes, so you know exactly how much you stand to lose – or gain.

You’re making improvements

Renovating your new home usually leads to changes in your home loan. Renovations and extensions don’t come cheap, which means you may need to take on more debt or extend your mortgage to finance them. In some cases, banks will offer a revolving credit option, essentially an overdraft that you can use to pay building costs as you go. Others will give you a new loan on top of the older one.

Your house is on the market

When you sell your house and buy a new one, you pay off your first mortgage with the proceeds of the sale. Then you take on a new loan with the new home as collateral. Even though this forces you to review your mortgage, many people don’t take advantage of the opportunity and simply stick with their original lender and terms. By working with an expert mortgage adviser before you switch your mortgage over, you could find a far better deal.

You’ve never done it

If you’ve had a home loan for a few years and you’ve pretty much ignored it, it’s definitely time for a review. Even if you’ve felt reasonably happy up until now, it’s always worth looking for ways to improve your terms and save money. A quick chat to a mortgage adviser to review your options could be worth thousands over the next 25 years.
Time to take a look at your mortgage? Talk to the team at Global Finance now.