Until the impact of COVID-19, in our experience, too few borrowers regularly took the time to undertake a full Home Loan Review.
With more time on their hands due to the lockdowns and the resulting cashflow pressures on households, this appears to have changed over the past 12 months.
Because of the lockdowns and a “red hot” housing market, home loan refinancing and approvals have reached an all-time high.
Home Loan Reviews – What has changed?
While there has been a record level of home loan refinancing in recent months, this is an anomaly.
Historically, home loans reviews have only been undertaken when a “trigger event” has occurred such as:
- The purchase of a new home
- Renovations
- Relocation
- Major life events
This is more than likely driven by the long-term nature of the home loans. For many people, Home Loans are seen as “set and forget”.
Why you need to complete a Home Loan Review
In our view Home Loans Reviews should be performed on an annual basis.
The reason for this is that finance, like life, must evolve.
A review may be needed to:
- Create a loan repayment strategy that will put you in a position to take advantage of wealth creation opportunities in the coming years
- Accelerate repayments to provide a margin for children’s future education
- Weigh the benefits of renovations vs. purchase of a new home
- Consolidate borrowings to reduce overall cost or financial outgoings
- Seek a repayment holiday in order to deal with a looming major life event
Is Your Finance Market Competitive?
Aside from life events that may necessitate a Home Loan Review, you also need to ensure your finance remains market competitive.
There are now many players in the home finance sector and competition is fierce, with many Lenders offering highly attractive rates and cash-back payments.
Undertaking a review does not necessarily imply switching Lenders, but rather ensuring that the package you have is competitive in comparison to the market.
More than the Headline Interest Rate
Headline interest rates can look attractive, but they are only one component of a finance package that need to be considered; other factors include:
- The loan structure and, importantly the attaching conditions
- Fees that may apply in certain circumstances
- Whether or not redraw arrangements can be improved
- If more effective account offset structures are available
- Deciding whether fix all, or portion of your debt
- To evaluate if cash back offers have downsides
Summary
As stated previously, conducting a Home Loan review doesn’t necessarily imply changing Lenders.
Rather it is a process that ensures your current financial structure is appropriate to your current circumstances and takes into account of your longer-term.
Cost whilst very important, it is just one aspect of a review.
Please do not hesitate to contact me If you would like to learn more.
