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Making your home loan work for you

When you first take on a mortgage, there’s a lot of thought involved. You go over your budget with a fine-tooth comb, working out how much you can afford to pay every month. You shop around for the best deals and interest rates or get a broker to help. You calculate repayments for the mortgage on your dream house, hoping you can make it work.

Often, all that thought ends once you sign the documents. Many people simply leave their mortgage as is for the entire term, except for agreeing to a new interest rate every so often.

Unsurprisingly, that’s not the best way to manage your mortgage. Even if you’re happy with your terms, structure, and interest rates when you take out the loan, it’s important to review your mortgage regularly. It’s about making sure your loan still fits with your budget and lifestyle, and that you’re not missing out on better rates or offers.

Here’s are some signs that it’s time to re-evaluate your home loan:

A fixed-rate is ending

When a fixed-term interest rate is about to expire, it makes sense to take a good look at your options for renewal. If you do nothing, most banks will roll the rate over to the current variable or floating rate, which may not be the best option for you. Before you decide to re-fix the loan or switch to a floating rate, check out other interest rate options and consider talking to a broker – it may be a good time to refinance with another lender.

You’re having issues with your cash flow

No matter how well you plan and budget before you buy a property, unexpected costs can make it difficult to stay on track. If you’re struggling to balance your mortgage repayments, other bills, and general life expenses, a mortgage review could help. If your repayments are unsustainable, refinancing could be an option. You may be able to extend the length of the loan, go interest-only for a set time, or get a better interest rate to lower your monthly repayments and improve your financial situation.

Life changes are on the way

If your life changes, your mortgage may need to change as well. Having a baby, losing a job, marriage and divorce can all have a significant impact on your financial situation, so it’s a good idea to review your mortgage at the same time. If your income is likely to decrease, you may need to restructure your loan to lower your repayments.

Your income increases

Coming into money is a great reason to review your mortgage. If you get an unexpected end-of-year bonus, land a lucrative new job, or inherit a sizeable lump sum, you may be able to pay the loan off more quickly. Depending on the size of your financial windfall, you could shorten the length of your loan and increase your monthly payments, saving significant interest over the term of the mortgage.

Your house needs work

If you’re considering a big renovation or extension, changing your mortgage could help you finance the project. Although you could use credit cards or take out a separate personal loan, folding the costs into your existing mortgage means you benefit from the lower interest rate attached to your home loan.

Some banks and lenders will offer a top-up loan on your current mortgage, while others will want you to refinance at a higher lending level. Either way, it’s a good time to review your mortgage and assess your options.

Debt is out of control

Juggling other debts alongside a mortgage can be challenging. If you have a range of personal loans, car loans, credit card debt, or other loans, it’s easy for repayments to fall behind and your overall debt to spiral out of control. If you’re struggling with debt, refinancing can help you get things back on track. Essentially, you take out a new, larger mortgage and use the difference to pay off your other debts. This option makes your debt easier to manage, because it’s all in one place, and gives you the benefit of a lower interest rate as well.

Review, restructure, refinance

Reviewing your mortgage is key to managing your finances effectively. If you don’t check and compare the terms of your loan, and look at other options from other lenders, you’re likely to be missing out – and losing money. Your mortgage should fit your finances and your life stage, so make sure you’re reassessing and considering other options whenever you hit a major life change or if you’re struggling to make your budget work.

Need help reviewing your home loan? Ask the experts at Global Finance for help.