Has Your Mortgage Gone Stale?

In my 17 years in financial services and mortgage management, I've continually noticed a trend in money management habits. I've noticed that many households are not evaluating their financial situation regularly enough, inside their continually changing lives and are therefore not updating their structures to suit. There are a number of consequences of not tracking your finances, especially when it comes to your mortgage.

So, I've put together a series of questions to ask and evaluate to ensure you're on the money when it comes to your mortgage health check.

Here's my 7 Point Mortgage Savvy Checklist:

1. How old is your mortgage? I'm continually surprised that many people do not know or track how old their mortgage is. Keep a diary or spreadsheet of important financial data. Consciously compile important data so you know where you are at at all times or engage a money coach to assist you with this and remind you when it's time to reassess or refinance your mortgage. So many households are losing money as we speak due to poor money management skills.
2. Is your mortgage from old money? Have you ever noticed when you fill up your petrol tank after prices drop that not every station along the strip has dropped their prices the same margin? Often this is because they are tracking the cost of their fuel stocks against what they paid for it. Sure enough as they sell out the older more expensive reserves, their prices also come down in line with the other competitors. Mortgages can also be similar especially if you have had your mortgage for the best part of the last decade. I'm seeing many clients with mortgage rates around 5 - 6%. This is unnecessary in most cases - you're simply throwing away good money for no good reason and should look into refinancing options at a more competitive rate.
3. Is your interest rate competitive? When was the last time you check what your rate was? Did you know, most households can not tell me what their current mortgage rate is right now? Especially if you're not reviewing your mortgage statements regularly. How many of your mortgage statements are still sealed within the envelope they arrived in? It's a very competitive market place - a rate reduction of only 0.5% could save you thousands of dollars.
4. Do lenders look after existing customers or new customers better? You might be shocked to realise that lenders have a clear appetite for new clients and place far, far less importance on their existing clients. Every time we see a rate movement (up or down) there are always two different rates produced. One for the existing client and another different rate for the new client. Which one is lower? The new client rate of course. Particularly when we have a series of rate changes, such as over the last couple of years - it's important to review your mortgage regularly to ensure you are staying in touch with the current market. Just a few movements could place you out of the market by as much as 0.3 - 0.5%.
5. Is your mortgage structure aligned with your circumstances? Notice how fast paced our lives are now? This is pretty much the same for everyone. The loan you set up when you purchased your first home might no longer be serving you now. A mortgage coach or manager can assist you to re-evaluate your circumstances and advise the best structure for your current or changing needs. The interest only portion whilst your wife was on maternity leave may no longer be suitable since you are both working full time again. The variable home loan may need to be reviewed in relation to the changing interest rate environment to provide peace of mind and stability of repayments. The fixed loan may have served you well when you had a larger mortgage or lower income but now that your cashflow has increased, debt reduction strategy high be far more appealing to be able to pay your loan off in up to a third of the time with a flexible structure. Whilst you're re-evaluating these needs, you might likely also benefit by a lower rate, loan consolidation and improved cashflow positioning.
6. What are your goals? So, your mortgage has come down a great deal or your equity has increased dramatically over the last several years. What now? Now might be the time to move from debt management strategy to wealth creation and creating an investment portfolio. Your equity can be utilised with the correct mortgage structure to give you access to a deposit on an investment property and maybe at the same time you can touch up those minor tasks and improvements you haven't got around to doing around the house. Combining goals is wise to create an effective mortgage strategy.
7. How should you choose the right mortgage and right lender? Make sure yo do your homework. However, make sure you're not making multiple finance enquiries with different lenders - this will severely damage your chances of credit. Look at the market position of interest rates and mortgage features via the internet.

HINT: Don't get sucked into just focusing on the lowest interest rate. You need to assess more than just the interest rate, aligned with your goals. Certain loan features such as an offset account, flexibility and low (or not) annual or ongoing fees should also be considered in your decision. You should also be assessing the costs of refinancing, any break-costs from your current loan, as well as any mortgage insurance payable. Don't forget to assess what the comparison rate of the loan is - don't just look at the advertised rate - there could be a lot of other costs associated with the mortgage which can be expressed in the comparison rate. Be aware that most online comparison sites do not compare the whole market and may have a vested interest to recommend certain lenders or products. Try to find a trusted adviser who has your best interest at heart.

If you have any questions or contributions relating to this article, please take the time to comment below and share your thoughts or opinions for the benefit of others reading this. No doubt this topic commands interaction, innovation and collaboration. The more answers that are delivered, the more questions that will arise. If you have any personal questions or queries, please feel free to contact me on 0434 455 225 or email: [email protected]

About the author:

John Maxwell is founder and Senior Finance & Business Strategist at Cocalex Consulting. John has over 17 years' experience in the financial services sector, and has owned and managed 9 mortgage franchises and has developed a background across the holistic financial services realm. He has particular focus and passion for: Leadership Training and Development, Franchise Development and Business Networking.