Home loans need to change to reflect your lifestyle

So, you’ve got the home loan, bought the house and are now you’re settling in ...

Well, don’t get too comfortable - nothing stays the same and a proactive approach to your borrowing arrangements over time can save you thousands.

It seems your home loan can be likened to the car you drive – just as it reflects your lifestyle, needs and goals at any stage in life, so, too, should your home loan.

"This is well illustrated by the fact that the cheap runabout you drive when you’re in your early 20s is very different to the seven-seater four-wheel-drive you’ll need in your 40s when you have three children and their friends to transport," says Smartline Personal Mortgage Advisers’ Michelle Schaafsma.

"A young couple starting out who have managed to save their deposit and are in the early stages of their careers, on entry level incomes, probably only need a basic loan with minimal fees and features that simply allows them to maximise paying every dollar off as quickly as possible.

"However, five years later they’re in a very different situation. They’ve paid off a chunk of their home loan and both are earning considerably more and perhaps saving for something significant, such as renovations or an overseas trip. They may well be better off with a home loan package that includes an offset account, redraw, a low fee credit card and a more competitive interest rate.

"Later in life, as the couple moves towards retirement, they may not want or need a complex loan or loan structure. They may well want a basic loan again that is going to allow them to quickly pay out the final amount owing on their home loan in the last few years of their working lives."

Schaafsma said a good mortgage broker would review each client’s situation annually to ensure that loan products and structures in place continue to meet their needs and goals.

She says clients who haven’t reviewed their home loan arrangements in the past three years could be getting a better deal. "The point of the review should not be to focus just on the interest rate on offer and the lender, although they are certainly key considerations, but to determine whether you need the same things out of a loan now that you did when you first took it out.

"If your lifestyle, requirements and financial situation have changed, for better or worse, then there is probably scope to investigate other options.

"Take the couple facing cash flow pressure as a result of reduced household income and/or considerably increased expenses, such as private school fees, who have diligently been making principal and interest repayments on their home loan for 10 years.

"They could probably refinance their mortgage and reset the term of their loan. This would considerably reduce their repayments and improve their household cash flow position and their whole lifestyle."

Schaafsma said the policies and criteria of the banks had changed considerably in recent years and continue to do so. "So, it might be that some forms of income (such as commissions or bonuses) that weren’t previously considered by your lender now are, or that you’re able to borrow a higher percentage of the property’s value.

"The competition in the home loan market also means banks tend to offer loans on more favourable terms to new customers, or existing customers who are prepared to ask for a discount.

"An experienced mortgage adviser will consider your current situation in depth and be able to advise of the best approach to maximise the opportunities available to you."