Once you have made it onto the property ladder you have most likely got yourself a mortgage… and if you are unaware of the origins of the word it basically means “dead pledge” from the Old French, from mort (from Latin mortuus ‘dead’) + gage ‘pledge’ so we’re pretty sure that discussion about mortgage rates, versus actually buying that house, is as exciting as a cup of cold sick!
BUT… that doesn’t mean you should be OVERPAYING… and you could be. Fixing or refinancing/refixing your mortgage could save you significant money (as seen in this refinance case study) but there are a number of things to consider to help you make a fully informed choice when talking to your bank or a mortgage broker.
Does it look like interest rates will fall?
Noone likes buying something and then seeing it go on sale the following week and that is the same situation you could be in with your mortgage. Have a look at the commentary around interest rates. Does it look like rates will be going up? Or are they likely to fall further? Locking in your mortgage rate gives you the assurance of how much you will be paying but should rates fall you won’t get the benefit of reduced payments so it pays to take a calculated risk. If you are happy paying an amount and it is affordable consider fixing for a longer period. If rates are forecast to drop then take a shorter fixed rate. It depends on personal circumstances so talk to an advisor and find the right structure for you.
Is anything big likely to happen in your life?
When you fix or refix your mortgage you are basically planning something for 1 or 2 years so it is worth considering if anything big is likely to happen in that period. For example, are you pregnant? How will the child affect cashflow and your housing needs? Does a visa run out? It’s a worthwhile exercise to sit down and forecast your next 1-2 years. Run through some of the best and worst case scenarios and think about how they may affect your mortgage.
Some of the most likely things to think about are:
Will you need to move and sell your house any time soon?
If you sell your house and you have a fixed rate mortgage there are, more often than not, penalties, called a break fee, for breaking the fixed interest rate period you have agreed to. Sometimes this isn’t very much and it may vary depending how far through the fixed term you are, but likewise it could also be several thousand dollars depending on the size of the mortgage.
Is my employment safe? Will I be looking for a new job?
If you are uncertain about your job security then fixing your payments as low as possible is a great plan of action (as well as looking for a new job!) but you could also consider revolving credit accounts, where you pay down your mortgage but the money is still available should you need it.
Planning to win the lottery?
Now obviously that can’t be planned. But other windfalls could be. Are you due a big bonus from work or a share of proceeds from a family property sale? If you have savings in the bank then they may be put to better use on your mortgage. Borrowing rates are higher than saving rates and so you can make your money work harder by paying off a lump sum and negotiating a better fixed rate due to the amount of equity you have in the property.
Mortgage advisors will discuss all of these scenarios with you and make recommendations for your set of circumstances. Complete our short mortgage health check and we can put you in touch with an excellent broker to discuss your options.