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Time to defrost your home loan?

Has your home loan been on ice, unchanged for as long as you can remember? There are some red-hot deals on offer right now that could melt years off it, so this may be the perfect time to crack it open and see if it still matches your current lifestyle and financial circumstances.

When you first took out your home loan, it was probably perfectly suited to your needs – and it still might be today.

But with low interest rates and increased competition between banks and other lenders, it is quite possible you could find a better, well-suited deal.

Belinda Williamson, Head of Corporate Affairs at Mortgage Choice suggests that if circumstances have changed since taking out your loan, you may now be eligible for a different loan type, one that potentially has a lower interest rate, additional features and better facilities.

To determine whether your home loan is in need of a health check this winter, Ms Williamson recommends asking yourself the following simple questions:

1. Do you know your home loan’s interest rate?

You could be paying too much, especially since interest rates have dropped considerably over recent months. Make it your business to find out what you are paying. A home loan health check could reveal another option with a lower interest rate that is also a better fit to your current needs. You will of course need to weigh up the cost versus benefit of switching lenders and/or loan products.

2. Have you just received a pay rise or bonus?

Adding a lump sum contribution to your home loan can help to reduce the interest owed and the term of your loan. Check to see whether your current home loan has the ability to make extra repayments. Keep in mind that if you have an offset account or redraw facility attached to your loan, you can still access the extra funds if needed.

3. Have you recently moved from a single income to a double income?

You might choose to use your second income to repay your home loan sooner and/or build up equity to upsize, buy an investment property, etc. Using an offset account could be a good option, particularly if you now have more income to add to the account, which would reduce the overall interest charged on the loan. If your current home loan doesn’t have an offset account facility you may want to review those that do.

4. Are you looking to expand your family?

If you want to lower your loan repayments for a set period of time to alleviate pressure, or to use your funds in a different way, you might consider switching to an interest-only loan. These loans offer many of the same features as principal and interest loans with the benefit of lower monthly repayments. Again, the cost versus benefit of switching lenders and/or loan products needs to be carefully considered.

5. Do you have plans to upsize or downsize?

If you are looking to move to a different dwelling to suit your changing needs, there are a number of options available. Whether you are looking to upsize or downsize, a check-up will allow you to determine whether your current loan is still the most suitable or whether there is a better option available for you. In either case, a mortgage broker can help you assess your options.

Ms Williamson pointed out that while online calculators and comparison websites are a helpful starting point when assessing the suitability of a home loan, professional mortgage brokers go above and beyond this by factoring into the assessment borrowers’ individual circumstances to tailor the loan comparison.

“Mortgage brokers have up-to-the minute information from a wide range of banks and other lenders at their fingertips and can help you compare loans and identify a well suited option for your needs”, Ms Williamson said.

“They also step you through the loan selection, application, settlement process and more, which can save you time, stress and potentially money”, she concluded.