If you’re thinking about changing your loan to match where you are in life, it’s really worth exploring more than one appealing option.
While a standard home loan term can last 30 years, you shouldn’t feel like you're stuck with that particular loan.
There’s a lot that can happen in the space of a few years – let alone 30.
You might want to move.
You might need a bigger (or smaller) house along the way.
Our lives change, and your home loan can change with you.
It’s always a good idea to make sure your home loan suits the stage of life you’re at.
It may not just be about the house itself – perhaps you want different features attached to your loan.
Maybe you want a line of credit instead of a traditional loan, or you like the idea of an offset account?
There are many options out there – but don’t be tempted to sign up to the first good deal you see.
If you find a loan that’s mostly suitable, keep looking!
You’ll find the right one, and the doing a little research upfront can save a lot of hassle.
Paying to end or start a loan
The Federal Government got rid of exit fees from 1 July, 2011—but this is only for contracts signed after this date.
If you signed before then, you may pay exit fees for ending your loan early.
Check with your lender if you’re unsure.
On the other hand, when you sign up for a new loan – especially if it’s with a new lender – you may have to pay start-up costs, like an application fee.
This information is always available beforehand, so make sure you ask.
Another, sometimes expensive, cost involved in switching a loan is economic cost.
Switching interest rate type
Home loans typically have two types of interest rates: fixed and variable.
It’s usually quite easy to go from variable to fixed, but unfortunately, going the other way can prove costly.
Economic cost
Having a fixed-rate home loan means you’ve agreed to an exact interest rate for a certain period.
If you end your loan before this period ends, your lender may charge you economic cost—an estimate of their loss resulting from the change.
Since your lender suffers loss when you break a loan term, it’s a cost you need to pay, so get a quote before doing anything (if you have a fixed-rate loan).
Choosing a loan term
If you have a loan where you can choose the term, it’s important to do your sums first.
The shorter the loan term, the less interest you’ll pay—but your repayments will be higher.
If you choose a longer term (say, 30 years) your repayments will be less but you’ll pay more interest.
Interest only repayments
Australian Securities and Investments Commission has some useful information for customers interested in using an interest only repayment period as part of their loan term.
Check out their MoneySmart guidance for some easy to follow infographics highlighting the pitfalls and benefits of this type of lending structure.
You can also find examples of how much you may expect to pay for this type of loan structure.
Doing it for the benefits
In addition to your loan, you might be thinking about getting a new credit card or an offset account attached to your loan.
Think about how a travel company will put together an all-inclusive holiday package – most lenders can put together a cost-effective package to include all your banking products to make managing them even easier.
Need to switch your loan?
Contact us @ propertyloans@realrenta.com and we will arrange for a lending specialist from our trusted finance partner to contact you shortly.
Marlene Liontis
Friday, 15 February 2019
