When interest rates move: Is your home loan still right for you?

For most Australians, a home mortgage is one of the biggest financial commitments they will ever make. Yet once the loan is established, it can be surprisingly easy to simply keep making the repayments without regularly asking whether the loan is still competitive or appropriate.

Interest rates can change that conversation very quickly.

When rates rise, household budgets can come under pressure as repayments increase. When rates fall, borrowers may suddenly have an opportunity to reduce repayments, repay their loan faster, refinance or redirect savings towards other financial goals.

The important question isn’t simply, “What are interest rates doing?” It is, “What should I be doing about it?”

Top 5 Questions to Ask Yourself

1. Can I comfortably manage my repayments if rates rise further?Don’t assess affordability based only on today’s repayment. Consider what another increase would mean to your monthly household budget. Having some financial breathing room can help you manage unexpected expenses without relying heavily on credit.

1. Am I paying a competitive interest rate?Loyalty doesn’t always result in the best home loan rate. If you have had your mortgage for several years, your lender may offer newer customers different rates or incentives. That doesn’t automatically mean you should refinance, but it certainly warrants a review.

1. If rates fall, should I reduce my repayments?Not necessarily. If your interest rate falls and you can afford to maintain your previous repayment amount, the difference may help reduce your loan principal faster and potentially save considerable interest over time.

   The right strategy will depend on your circumstances and other financial priorities.

1. Am I using my loan features effectively?Offset accounts, redraw facilities, additional repayments and different fixed and variable loan structures can all play a role.

   For example, holding available savings in an offset account may reduce the amount of your mortgage on which interest is calculated while still providing access to your money.

   Understanding exactly how your loan works is important.

1. Have my circumstances changed?Your mortgage may have been appropriate when you established it, but life moves on. Your income may have increased, children may have arrived or left home, your property value may have changed, or retirement may be getting closer.

   Your home loan strategy should evolve with your life.

Top 5 Questions to Ask Your Mortgage Broker

1. Is my current home loan still competitive?Ask your broker to compare your interest rate, fees and features with appropriate alternatives available to you.

1. What would refinancing actually save me?A lower headline rate isn’t enough. Refinancing can involve establishment costs, discharge fees and other expenses. Ask about the potential saving after costs rather than simply comparing rates.

1. Should I consider fixed, variable or a combination of both?Each structure has advantages and disadvantages. Your decision should take into account your budget, goals, need for repayment certainty and capacity to tolerate future rate movements.

1. Which loan features would genuinely benefit me?There is little value paying for features you don’t need. Ask whether an offset account, redraw facility, repayment flexibility or other features could improve your overall position.

1. How does my mortgage fit with my longer-term plans?This may be the most important question of all. Paying off your home shouldn’t necessarily be considered in isolation from superannuation, investments, retirement, cash reserves and other financial priorities.

Advice Matters

Interest rates will rise and fall many times during the life of a typical mortgage. Trying to predict every movement is almost impossible.

What you can control is how well prepared you are.

A mortgage broker can help you understand your borrowing options and determine whether your existing loan remains competitive. Your financial adviser can help consider your mortgage alongside your broader financial position and long-term objectives.

Sometimes the right decision will be to refinance. Sometimes it will be to renegotiate with your current lender. And sometimes the best advice may simply be to stay exactly where you are.

The objective isn’t necessarily to chase the lowest advertised interest rate. It’s to make sure your mortgage continues to support the life and financial future you’re working towards.

Regular reviews and good advice can make that decision considerably easier.

If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.

This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.

(Feedsy Exclusive)