We all need a roof over our heads, and many people prefer to own their own home instead of rent one. That's why home loans are so popular - we don't all have a spare $1.2 million lying around to buy a house outright in Sydney1, so we need some help from mortgage brokers or the banks.
When these bodies loan money, they do so with an interest rate. This means the longer it takes you to pay the loan back, the more it will cost, and it's how the banks and mortgage providers make their money. However, over the time it takes you to repay your home loan, your financial situation might change. If you find that you have blemishes on your Equifax credit report because of past debts, you'll need to work at paying these off as quickly as possible.
You might need to consider whether your home loan is helping you or hindering you.
Need to change your home loan in order to free up enough money each week to pay off these bad debts? You might need to consider whether your home loan is helping you or hindering you.
When could a home loan be helping you to save money?
There are two main types of home loans - fixed rate and variable rate home loans2. Your financial position could change which of these is the most suitable for you. If you need to know an exact budget week to week, a fixed interest rate on your mortgage is the best option. The fixed rate is only valid for between two and five years though, after which time your loan provider will either re-fix the rate to suit the market, or it will revert to the regular variable rate (essentially, the interest rate moves when the provider decides to change it)2.
If you're with a bank or mortgage provider that constantly lowers interest rates, you could be saving more and more money each month. The same goes for a fixed rate - during the fixed term, you'll know exactly how much money you can save (and put toward paying off your debts).
When could a home loan hinder your saving efforts?
On the other hand, if you have a home loan provider that constantly increases their interest rates (on a variable rate loan) you'll struggle to keep up the minimum repayments.
You need to constantly review your options if your financial situation changes, because switching banks or home loan providers could save you a lot of money in the long run, or it could allow you to pay off your debts much faster.
For information about your Equifax credit report, and to better understand your credit worthiness, get in touch with My Credit File today.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.
1. CoreLogic RP Data. Monthly indices. Accessed April 2017.
2. MoneySmart. Choosing a home loan. Accessed April 2017.