How to better manage your home loan

By Niko Iliakis ·

So you’ve acquired a home loan, settled into your brand new property and gotten into the habit of paying it down each month. While you might be confident you’ve got it all under control, there are bound to be a few things you’re a little bit uncertain about. For those who have a home loan but need a refresher on all its features, we’ve answered a few common questions below.

Where can I see my interest rate?

First things first: if you want to see the current interest rate on your home loan, you can always visit your lender’s website and find the product you’ve signed up for among their range of home loans (though this might not be helpful in the case of fixed rates). You can also sign into your online or mobile banking account and view the details of your loan there. 

Can I change the size of my regular repayments?

If you have some extra space in your budget and are eager to pay down your loan faster than planned, you can opt to increase the size of your regular repayments. This is always a good idea (assuming you’re not putting too much strain on your finances) as it reduces the amount of interest paid over the life of the loan.

You can also adjust the terms of your loan so that you pay less each month. This can be done by switching to an interest only loan (more on that below), or by continuing to pay both the principal and interest but asking your lender to decrease the repayment amount. If you opt for the latter, lenders will still need to make sure that you can repay the amount owed by the end of the loan term.

How do I switch from a variable rate to a fixed one?

In the months since the Reserve Bank of Australia cut the cash rate to 0.25%, lenders have responded by reducing both fixed and variable rates to all-time lows. Of the two, however, it’s fixed rates that have seen the steepest declines and the nation’s borrowers have taken note.

If you currently have a variable rate loan and are thinking about converting it to a fixed rate, get in touch with your lender so they can walk you through your options. You might also be able to hedge your bets by splitting your loan. This involves nominating one portion to have a variable interest rate and the other to be fixed.

Can I change the repayment type?

If you’re currently making principal and interest (P&I) repayments on your home loan, you can request to make interest only repayments for a set period. By doing so, you effectively reduce the amount you pay during the interest only period. This can be helpful for owner occupiers in need of some breathing room in their budgets, or investors hoping to free up some cash to pour into other investments.

Of course, the downside to switching to interest only repayments is you’ll wind up paying more over the life of the loan. Since the principal remains untouched during this period, the full amount continues to accrue interest. On top of this, you’ll usually be charged higher interest rates when switching to interest only repayments.

To make up for all this, your lender will increase the size of your repayments once the interest only period ends. It’s for this reason that interest only terms are usually capped at five years. If borrowers were granted longer terms, the P&I repayments they’d be required to make afterwards could be beyond their budget.

Can I redraw from my loan?

Most loans nowadays come with a redraw facility, allowing borrowers to retrieve any extra repayments they’ve made towards their mortgage over the years. The recovered funds can be used for any purpose, such as paying for a holiday, renovating your home, or covering any unexpected expenses.

Redrawing money on your home loan is fairly simple, and the process can usually be handled via internet or phone banking. It’s also typically much cheaper than using a credit card or taking out a personal loan, as interest rates on home loans tend to be lower than other lines of credit. Just keep in mind that some banks charge fees for access to redraw facilities.

What is a loan top-up?

If you’re in need of extra cash, you might also be able to borrow additional funds against your current home loan. This is known as topping up your loan, and it can be preferable to taking out other kinds of loans for a number of reasons. Not only will the interest rate be lower, but you might find it’s easier to manage multiple debts when they’re all under the one account.

However, it’s important to understand that by increasing your loan you’re ultimately taking on more debt. That means your monthly repayment amount will increase, as will the interest paid over the life of the loan.

The amount of additional debt you’ll be able to take on will depend on your financial circumstances, along with how much equity you currently have in your property. To find out how much more you can borrow (if any), visit your online banking portal, or organise to speak with a home loan specialist from your bank or lender.

My fixed rate term is almost up, what are my options?

If you’re approaching the end of your fixed rate period there are a few options available to you, including refixing your loan or letting your loan roll over to a variable rate. Both have their advantages, so let’s go through each.

Refix your loan:
A fixed home loan rate offers certainty around how much you’ll be paying, allowing you to budget around your monthly repayments. It also protects you against any future rate hikes (though there’s not much risk of that in the current interest rate climate). 

Assuming you fixed your loan several years ago, the rates you’ll be looking at nowadays will also be much lower. In this year alone, the average 1-year fixed rate among providers in our database fell from 3.21% p.a. in January to 2.54% p.a. in July.

Switch to a variable rate:
Unless you instruct your lender to do otherwise, your loan will automatically roll over to a variable rate. Variable rate home loans tend to offer more flexibility and features than fixed ones, in the form of redraw facilities, offset accounts, and the ability to make extra repayments without incurring any fees.

Where do I find information on refinancing?

If you’re unhappy with your current interest rate and attempts to negotiate a cheaper one with your lender have been less than fruitful, you can always switch to another lender. While there might be a few hoops you’ll need to jump through along the way, it can be worth it in the long run.

One thing you’ll need to consider is that refinancing usually comes with its fair share of fees. Lenders might charge a termination fee for exiting your home loan early, or a break fee if you’re refinancing from a fixed rate home loan. There might also be costs involved on your new lender’s end, such as a valuation fee if they want an up-to-date valuation of your property.

For more information, be sure to browse our home loan refinancing page. And if you’re unsure where to start when it comes to finding a loan, visit our home loans comparison page for an overview of what’s available.

Home loan comparisons on Mozo - page last updated October 17, 2020

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*WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

**Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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