So you’ve had your loan approved… What comes next?
Your mortgage documents will detail your schedule of payments – that is, the amount, and frequency of payments, the start date and the end date too.
Most people opt for an online set up that enables automated payments – a great idea for when life gets busy. But always remember to go through the fine print with your broker so you understand the fees and charges as well as the terms and conditions of your loan. And don’t get complacent. Keep an eye on your mortgage –a simple annual review is a good idea to make sure everything is running smoothly.
Most people want to make some headway on their mortgage as quickly as possible. Can you change the frequency of your repayments? Most lenders set up the loan to be repaid monthly, by simply changing to weekly or fortnightly repayments you will be making a couple of extra repayments per year.
Can you make extra repayments? Whether your loan is fixed or variable, interest only or principal and interest, making additional lump sum payments can reduce the term and in the end the amount of interest you pay. Make sure to speak to your broker to ensure you can make extra repayments without being penalised. Remember every extra dollar helps.
A mortgage with an offset account allows you to pay all of your salary into one account which then ‘offsets’ the interest charged on your mortgage. These accounts can be really helpful if you’re keen to pay off your loan relatively quickly because interest is calculated on the difference between your savings balance and your mortgage balance. Effectively, the more money in your offset account, the less interest you’ll pay. And one of the great things about an offset account is that you still have access to ALL the funds ALL of the time, so if you have an out-of-ordinary big expense, you can still get the money you need. In the meantime, that money that’s ‘offsetting’ your mortgage is working for you because the incentive to keep it in the bank is a lower interest calculation every month.
If you have a rental property you will definitely want the tenant’s rental payments to match up with your mortgage payment schedule, and if one tenant moves out and another moves in, make sure you’re covered to make the payments in between.
Mortgages are generally designed to span a few decades, and life can be unpredictable, so it’s entirely possible that you might find yourself going through periods where it is difficult for you to pay back your loan. For example, you might lose your job, or your partner might stop work to have a baby or you might need to care for a sick relative for an extended period of time. Don’t panic! There are always options. Most lenders are entirely approachable and will help you through a tough patch by adjusting your repayments or suggesting a different loan.
Sometimes, especially if you have many financial commitments like credit cards and car finance and student loans, it can be worthwhile consolidating all of your debts into your mortgage because home loan interest rates are cheaper than many other types of finance. It’s worth considering.
Every bank has a financial hardship policy. Your mortgage broker can help you work through financial scenarios to take to the bank if you don’t want to go it alone. The important thing is to advise your broker or lender as soon as possible that you’re in financial difficulty.
A mortgage is without a doubt, the biggest financial commitment you’ll make in your lifetime. And while it can be a big adjustment getting used to repayments to begin with, they should not be a burden forever. You need to be able to live a quality life and have a flexible loan that can change as your life changes.
And this is why it’s important to use the services of a broker. You don’t just want the cheapest interest rate, you want the best loan for your circumstances. And there are so many to choose from. A broker can help you sift through the options and find something that’s going to work for you now, and help you to maximise the investment you’ve just made in purchasing property.
And remember an annual home loan health check is always advisable.