Health, friendship and happiness – we assess almost every aspect of our lives in the new year, so why not re-evaluate the loans that are financing our homes?
It’s easy to adopt a set and forget policy when it comes to your finances, but it could be that your home loan is lacking relevance to your current situation. A home loan is probably the biggest finance product you’re likely to purchase in your lifetime, so it makes absolute sense to check in every now and then to make sure it works for you – and what better time than in the new year?
Here’s why a home loan health check could be just what the doctor ordered for 2018.
There’s no point giving more money than you need to your bank. Picture: realestate.com.au/buy
Interest rates are low, for now
REA Chief Economist Nerida Conisbee says searching for a lower interest rate makes sense at any time: the lower your interest rates, the lower the repayments will be. You could knock years off your loan, not to mention saving thousands in interest.
With interest rates “unlikely to rise anytime soon”, it is an especially opportune time to refinance.
“Even though the RBA is unlikely to increase the cash rate any time soon, mortgage rates continue to rise, driven by a lot of other factors including rising wholesale costs and regulators urging banks not to lend too much,” Conisbee says.
What special home loan features could be worth looking into before there is a rate rise? Picture: realestate.com.au/buy
Loans with special features, such as flexible repayments, will help you to pay off your loan faster in a low interest rate environment. So if your home loan doesn’t currently offer this, it could be worth looking into.
“Depending on the loan agreement with your lender, while rates are low, it might be worthwhile paying off a little more of your mortgage than necessary as this is likely the best it will be for quite some time,” Conisbee adds.
“For those on interest only loans, and nearing the end of their interest-only period, it’s an especially good time to shop around.”
The economy has reason to raise rates, eventually
While Conisbee says the banks are unlikely to raise interest rates anytime soon, it will likely happen at some time this year.
“China, the US and Japan are our three biggest trading partners so when their economic growth is strong, it increases demand for our goods and services,” Conisbee explains.
“While China’s economic outlook isn’t expected to be vastly different in 2018, it is the US that is really expected to see vastly different conditions over the next two years. The US economy is growing quickly and this is increasing demand for Australian exports. This will grow our economy and give more reason to raise rates in 2018.”
If you’re thinking of refinancing, it could be worth getting a jump on a deal before this happens.
Investors could find their silver lining
“A lot of banks are already moving interest rates up, particularly for investor loans,” says Conisbee.
“This might be due to a number of events that occurred last year. There have also been additional taxes on offshore investors in many states, as well as cuts to benefits off the plan buyers enjoyed such as stamp duty concessions. Even negative gearing wasn’t left alone, and while the changes thus far have been fairly moderate, bigger changes could be on the cards if a new government comes into power,” she says.
“And in some states, there’s just less supply and fewer apartments on the market,” she adds.
“There are likely to be far fewer investors in the market this year, so it would pay to shop around, given it would be more competitive for banks to find borrowers,” Conisbee says.
Source: https://www.realestate.com.au/advice/your-2018-home-loan-health-checklist/