There’s no one-size-fits-all when it comes to a mortgage. Different mortgage options suit people at different stages of their lives – what makes sense when you’re a young family on a single income will be different from when you’re 65. As your life changes, it’s a good idea to check your mortgage, so it changes with you.
Ideally, you should review your mortgage annually and alongside big life changes – doing so may secure you a better deal, free-up cash and help pay off your mortgage faster.
When to check your mortgage
- ● Marriage, divorce or welcoming a new baby
- ● Downsizing, upsizing or renovating your home
- ● Job loss, salary increase, nearing retirement or change in credit score
- ● Investing in property
- ● Needing access to cash – medical bills or children’s education
- ● A national change in interest rates
Your options explained
If you’ve been financially impacted by COVID-19 or are struggling to meet your repayments, this could be the best option for you. Mortgage Refinancing involves reorganising your mortgage – usually swapping your loan from one bank to another to take advantage of more favourable terms. With interest rates at an all-time low, refinancing may secure you a better deal on your mortgage – so you can pay it back faster.
Restructuring looks at the way you’ve arranged your loan to best fit with your goals and lifestyle. You might choose to split your mortgage into a fixed term and a floating rate, have a revolving credit facility or add an offset account. No option suits everyone – the purpose is to arrange a structure to best suit you.
A reverse mortgage allows you to access the equity or value that you’ve built up in your home, to ease financial pressure on your day-to-day. This option is usually accessed by older homeowners, over the age of 60.
This gives you what amounts to a large overdraft so you have access to funds if you’re facing an unexpected medical bill, your child is about to go to university or you plan to renovate. It also lets you pay down the loan faster, without penalty – ideal if you’re not sure exactly what your income will be. This is only an effective option if you are good with budgeting and trust yourself not to dip into the funds unnecessarily.
An offset mortgage is linked to your everyday account and uses that money to ‘offset’ interest on your home loan. You’ll still have the same monthly repayments to make, but more money will go to your principal loan, rather than to interest, so you pay off your loan faster. Because you can nominate any account to offset a mortgage, this is suitable for parents who are helping their children into a home. It’s also great for people who would like access to their savings, while still using them to reduce their interest payments.
An interest-only agreement would benefit someone needing more cash flow, or if you suddenly face financial difficulties. Banks will generally only approve interest-only loads for a short time – six months to a year – so it’s most suited to property investors needing to free-up cash, someone needing immediate financial relief or facing a temporary income dip, like maternity leave.
Debt consolidation allows you to bundle debts into your mortgage. With little to no extra fees, and much lower rates than a standard credit card or hire purchase, debt consolidation can significantly reduce your monthly repayments. This is a smart option for anyone who wants to get on top of multiple debts.
Reducing balance home loans
With a reducing balance home loan, you pay your principal and interest separately. Your principal repayments stay the same throughout the loan term, but your interest will gradually decrease in line with the overall loan. This type of loan is usually more expensive in the short term but could suit you if you think your income could decrease, or you’re nearing retirement. This option is aimed more at people over 50 on high incomes, who can afford the initial high repayments.
Time to check your mortgage?
It’s always a good idea to check your mortgage regularly – particularly when your circumstances change. Whether you’re getting married, nearing retirement or expecting a pay increase, regularly reviewing your mortgage will ensure it continues to support you and perform at its best. If you’re not sure where to start, get in touch – we’ll help you get the right mortgage in place.
Contact us to talk about your mortgage options – we’re here to help.
**These are general guidelines and are by no means a reflection of bank or lending policies