New Financial Year Home Loan Checklist — What Every Borrower Should Review in July
Most people think about their super, their tax return and their budget at the start of the new financial year. Very few think about their home loan.
July is actually one of the best times of year to take a fresh look at your mortgage,a simple review could save you thousands.
Here's a checklist of what to look at.
Review Your Interest Rate
This is the first thing on the list because it's the one that makes the biggest difference.
Lenders consistently offer better deals to new customers than to existing ones. If you've been with the same lender for a year or more and haven't had a conversation about your rate recently, there's a good chance you're not on their best pricing.
A quick rate review costs you nothing. If your current rate is competitive, great, you know where you stand. If it's not, you have options. We can help you work out which lenders are offering better deals right now and whether switching makes sense for your situation. You can book a rate review with us here.
Check If You're Lender Locked
This is one of the most frustrating situations a borrower can find themselves in, and it's more common than most people realise.
Mortgage prison, sometimes called lender locked, is what happens when you're stuck with your current lender because you can't pass the standard serviceability assessment at a new lender, even though you're comfortably making your current repayments every month.
Here's how it happens. When you refinance to a new lender, they assess you at your new interest rate plus a 3% buffer. If rates have risen significantly since you first took out your loan, that buffer can push the assessment rate high enough that you don't qualify, even if your actual repayments would be lower with the new lender. The result is that borrowers who are managing their repayments perfectly can find themselves unable to access a better rate simply because of the way the serviceability rules work.
There are options for borrowers in this situation. We've written about one of them in detail previously — the Zeus Bolt refinance. This product is specifically designed for borrowers who have been with their current lender for at least 12 months, where the new loan would have lower repayments than the existing one. In this scenario, the assessment can be done with a 0% buffer, which opens the door for borrowers who would otherwise be locked in.
It won't suit everyone, but if you've been told you can't refinance despite making your repayments comfortably, it's worth a conversation. You can read more about how it works here.
Review Your Loan Structure
The start of a new financial year is a good time to ask whether your loan structure still makes sense for where you are right now.
A few things worth thinking about:
Are you on principal and interest or interest only? If you're an investor on interest only, check when that period expires. Rolling onto principal and interest without planning for it can be a significant jump in repayments.
Are you on a fixed rate that's about to expire? Fixed rate terms typically roll onto variable at the end of the fixed period, sometimes at a rate that's higher than what's available elsewhere. If your fixed rate is expiring in the next six to twelve months, now is the time to start thinking about what comes next.
Do you have an offset account? If your loan has an offset facility and you're not using it properly, you're leaving money on the table. Which brings us to the next point.
is your Offset Account Working for you?
If you have an offset account, the new financial year is a good time to check whether you're getting the most out of it. Interest on your home loan is calculated daily. Every dollar sitting in your offset account is reducing the interest you're charged every single day. Here's what to check:
Is your salary going directly into your offset? If not, it should be. Even if the money comes and goes throughout the month, every day it sits in your offset is a day you're paying less interest.
Are you holding savings elsewhere? Money sitting in a separate savings account earning modest interest is usually better placed in your offset, where it reduces your home loan interest at your full loan rate.
Do you have multiple offset accounts? Some lenders allow you to link more than one offset account to your loan. This lets you organise your money into separate buckets — bills, savings, a holiday fund, or if you're self-employed, a tax account — while all of it continues to work against your loan balance.
If you want to understand more about how offset accounts work and how to get the most out of yours, we've written a full guide here.
Clean Up Your Debts and Liabilities
If you're thinking about refinancing or applying for a new loan at any point in the next twelve months, the new financial year is a good time to tidy up your financial position.
Reduce credit card limits you don't need. Lenders assess you on your total available credit, not just what you've spent. A $15,000 credit card limit you barely use still reduces your borrowing capacity.
Close buy now pay later accounts. Afterpay, Zip and similar services are treated as liabilities by lenders even if you never use them. If you don't need them, close them.
Review any personal loans or car finance. High repayment debts like personal loans can significantly reduce your borrowing capacity. In some cases it's worth consolidating these into your home loan to reduce your monthly commitments and improve your serviceability position.
Check your HECS debt. If you're getting close to paying off your HECS, some lenders will exclude it from their calculations if it's projected to be repaid within twelve months. Timing your application carefully around this can make a meaningful difference.
The Bottom Line
Your home loan is probably your biggest financial commitment. It deserves more than a set and forget approach.
A new financial year review doesn't have to be complicated. In most cases it's a single conversation that either confirms you're in good shape or identifies something worth acting on. Either way, you're better off knowing.
If you haven't reviewed your home loan in the last twelve months, now is the time.
