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The right questions to ask about your home loan

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A new financial year is often a time to take a closer look at money matters. It’s when we find ourselves digging through receipts, looking at old bills and trying to find places where we can save some money in the New Year.

One place where people forget to look also happens to be their biggest household expense: their mortgage. And I believe the reason why people don’t look closer at their home loan is because the idea of refinancing seems too difficult, too confusing, or is perceived as probably not worth it for the effort. If you’re one of those people, it’s time to ask yourself some questions.

What’s my rate? In my experience, many people know what their monthly payments are, but they don’t actually know their interest rate. Do you? Take a look – if it starts with a “5”, you can probably do better and I’d advise shopping around.

What does the market say? Use a comparison site and find out what’s on offer. The current market for variable rate mortgages runs from around 4.6 per cent to 6.1. Three-year fixed rate mortgages range from the middle fours to well over 6 per cent. There’s a lot of difference, which means there’s solid scope for savings.

What could I save? Use the comparison sites to calculate several results. If you have a 300,000, 30 year variable loan at 5.6 per cent you pay $1722 a month; but if you refinance to a 4.6 per cent loan you pay $1537. That’s a difference of $185 per month.

What must I have? Have a good repayment record with your current lender and ensure you are not currently in arrears. Also, know that if you’re half-way through a fixed-rate loan you may be charged a break fee to leave. Make sure it’s worth it.

What are my other costs? A new lender will likely charge upfront fees, and there may be some costs to exit your mortgage. Also, if you have less than 20 per cent equity in your new loan, you’ll pay lenders mortgage insurance, which increases your costs.

Who do I see? Go to a mortgage broker or approach a lender directly. Brokers are refinancing experts who know how to streamline the process. Approach your current lender first because most loans managers have some discretion to offer you a better deal to stay.

How long will it take? What do I have to do? Both a broker and loans manager will give you a run-down of the process, the application, the documents they want you to provide, and the time it typically takes.

Is it worth it? You must answer this yourself. The total interest paid on a $300,000, 30-year mortgage at 5.6 per cent is around $66,000 more than the same mortgage at 4.6 per cent. You have to decide it this is worth the effort of refinancing.

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