Business Insider has partnered with Lendi to help you get on top of your mortgage — and spot some red flags you may not have even noticed. »
The average home loan in Australia is over $400,000. Without even taking into account the amount of interest that may accrue on that sum, it’s already a significant investment.
So given that it’s likely to be one of the biggest financial decisions of a person’s life, it’s important to make sure that your home loan is serving your best financial interests both in the short and long term.
If any of the following three red flags sound familiar, you might want to consider whether your home loan is really servicing you the way you deserve.
1. Not negotiating a better rate with your lender
According to the Lendi Borrower Confidence Report, which surveyed 2,500 Australians to uncover consumer attitudes towards the Australian home loan market, only 57 percent of homeowners surveyed knew they could renegotiate their variable rates with their lender whenever they wanted.
Presumably, this is due to the assumption that mortgages must remain as is for the duration of the loan – but in actuality you can request an amendment to your home loan’s variable rate at any time.
Lendi co-founder and managing director, David Hyman, was quoted in the report saying, “The majority of Australians believe the distribution of power in the home loan market is unjust, yet so many borrowers haven’t actualised their own power by bargaining or finding a better deal.
“It’s not apathy that is paralysing borrowers. It’s a lack of transparency in the market which blocks action by making it hard for borrowers to understand what their options are. The fact that more than one in two Australians don’t know they can negotiate with a lender is clear evidence of this.”
Your best bet is to keep an eye on what your current lender is offering as a rate for new customers, and request to match that rate when suitable. Make sure you have a strong understanding of what the market is like and what your lender’s competitors are offering, and you’ll have more leverage to negotiate.
You will also have to be prepared to make good on any ultimatums you might make. If you could get a better deal elsewhere and your current lender refuses to come to the table, be ready to switch lenders.
2. Not refinancing if the time is right
If you’re unsure, refinancing involves switching loans to secure a better home loan package to meet your needs. For many people, the priority is to reduce your interest rate and any fees payable, because it means you’ll be able to pay off the principal costs far quicker.
As an example, the difference between paying 3.7 percent and paying 3.1 percent interest on a 30-year loan of $400,000 is nearly $1,600 in the first year alone.
It is however, important to bear in mind that fees and costs associated with refinancing may make the decision less lucrative for you, so if you’re unsure, it may be worth consulting with a mortgage broker who can assess the situation and give more educated advice on what will work best in the long term for your circumstances.
3. Not considering all lenders, big and small
For most, entering into a mortgage will be one of the biggest financial decisions they make. As such, there’s a tendency to gravitate towards the bigger banks and lenders with established authority within the market – but that may not always be the best bet.
Banks aren’t the only viable source of a home loan, and nowadays it’s important to consider the smaller lenders and brokers out there – some of which may have better rates despite a lack of widespread brand recognition.
To help people identify their best loan options from lenders big and small, Lendi introduced their Approval Confidence capability, which assesses loans on offer to show you the best result for your personal circumstances and whether you are likely to be approved.
In the end, it may be that a different bank or lender might work best for you because they offer a particular product feature, like an offset account, redraw facilities or they can offer you a lower rate.
As such, it really is a question of suiting personal circumstance. The only real mistake here is not considering your options.
Disclaimer: Every situation is different, so consult a professional for advice or assistance before making any financial decisions.