For many Australians, the home is at the heart of their finances. Yet as rates rise quickly, many are now feeling the pinch when it comes to their repayments. If your budget is looking tight, it may be time to consider what you can do to relieve the pressure.
"In comparing your options, look beyond just the headline rates alone - consider fees, features, and how the loan will support your financial objectives now, and in the future,” says Pratham Karkal, Head of Direct Home Loans at Macquarie’s Banking and Financial Services Group.
If you recognise there’s an opportunity to level up your home loan game, the next step is to figure out how other loans compare and will they meet your needs today and into the future.
Questions you might ask yourself include: does the rate revert to a higher one after a promotional period? Are there any additional fees? Is now the time to go with a fixed rate, a variable or a mixture of both?
Once you understand your home loan and the options on the market, it’s time to make a decision as to what’s best for you.
You can get a quote on an interest rate and your repayments with Macquarie in as little as three minutes. If Macquarie is the right fit, borrowers could have an answer in as little as five business days of submitting their application and supporting documents.
It’s not only the home loan market that has changed in the last year. Your situation may also look quite different.
Through a combination of repayments and property value movements, your loan-to-value ratio may have improved.
If you have built up equity in your home, you may be able to get a better interest rate on your home loan.
"To take advantage of this improved equity position, you may want to request a rate review with your existing lender or choose to refinance your loan to a new lender,” Karkal says.
If you have previously made extra repayments or have excess funds available, it may be time to reconsider whether it’s time to scale down your loan by reducing your loan size.
You should note, however, that once you have used funds to reduce your loan limit, you can't access those funds as readily as you could when they were in a redraw facility. Speak to your lender for more information.
A homeowner with a $700,000 loan who has $50,000 excess cash sitting in a redraw facility may wish to reduce the home loan size to $650,000. This would lower their repayments each month, helping ease financial pressure.
Have you considered if an offset account is right for you? While it may not reduce your monthly repayments, offset accounts can assist you to reduce your interest payments. This means more of your repayment goes towards paying off the principal.
If you were to maintain an offset balance throughout the life of the loan, you could pay off your loan quicker, reducing the total amount of interest you are ultimately charged. It’s important to ensure that your offset account is set up correctly and linked to the right loan account in order to reap the benefits.
Significantly, a Macquarie offset home loan calculates interest daily. This means that every extra dollar you have sitting in your offset, even if it is only there for a short period of the month, can help reduce the interest you pay over time.
Macquarie allows you to set up multiple offset accounts for different savings goals, whether it’s a holiday, a new home or an education fund, while ensuring your savings are working hard to reduce your loan interest.
Another important feature of a Macquarie home loan is that every time there is a rate change, your repayments are automatically recalculated to ensure they are in line with the remaining term on your home loan. This process is often referred to as reamortisation.
Let’s assume you had been growing your offset account savings and as a result you had reduced your loan limit ahead of schedule. If your variable rate were to then change, your contractual repayments would be recalculated, spreading the outstanding debt over the remainder of your original loan term.
This could potentially result in your repayments being lower, even if your interest rate were to rise. Macquarie’s offset home loans can help you make the most of your financial position.
If you’ve made extra repayments and your lender hasn’t adjusted your loan to reflect this, you can ask them to recalculate your loan.
Have you considered splitting your loan? In line with economic conditions, the cash rate tends to move over time, and there are options you can consider to help manage your interest rate payments during periods of change.
For example, you may prefer to fix a portion of your loan for a set period, to reduce the amount of variability in your monthly repayments. Conversely, you may find that having a home loan interest rate that is 100% variable suits you better, given this allows you more flexibility with extra repayments, for example. There is no one-size-fits-all solution, so it’s important to consider the options at your fingertips.
By rethinking, refinancing and restructuring your home loan, you may be able to substantially reduce your repayments and make it work for you and your budget.
A redraw facility is a product feature which generally allows you to access some or all of the additional repayments that you've made on your home loan over and above the minimum required repayments.
Redraw is available on all variable rate accounts. Redraw is also available on fixed loan accounts but can only be accessed at the end of the fixed term
An offset account is a transaction or everyday banking account that is linked to your home loan. Every dollar you have in that account 'offsets' the balance of your loan – reducing the amount of interest you pay every month.
The offset account feature is not available on a basic home loan and is only available on the offset home loan product.
Having multiple offset accounts can help you to bucket your savings. This can help you manage your budget if you're saving for a few big things (like another property, a holiday, a wedding or a new car).
Having multiple offset accounts linked to your home loan ensures that all of your savings are working towards reducing the interest paid on your home loan.
LVR is the amount you need to borrow, calculated as a percentage of the value of your property. For example, if your loan amount is $400K and your property value is $500K, then your LVR is 80%.
Equity is the difference between the fair market value of your property and the amount you have left on your loan balance. Some investors may want to leverage the equity in their existing property for an investment home loan. Remember, the value of your property is subject to current market conditions. You may be able to release more equity in a market where house prices are rising, than in one where they’re falling.
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This information is issued by Macquarie Bank Limited ABN 46 008 583 542 AFSL and Australian Credit Licence 237502. It doesn’t take into account your objectives, financial situation or needs, nor is it intended as a substitute for any accounting, tax or other professional advice, consultation or service – please consider whether it’s right for you. Lending criteria, fees and T&Cs apply.