The factors that are really increasing your mortgage

For many homeowners, the start of each month brings with it renewed stress over what the Reserve Bank will do with interest rates.

Will rates stay put for another month, or will things begin tracking upwards for the first time in what seems like forever?

While borrowers have enjoyed historically low interest rates for some time now, the golden period won’t last forever, and 2018 is expected to deliver interest rate rises that will mean larger repayments for many people.

But while interest rate rises are many homeowners’ primary concern, have you considered other factors that could be impacting or increasing your mortgages just as much as – or more than – any moves that the Reserve Bank makes?

There could be other factors beyond the Reserve Bank that are impacting  your mortgage. Picture: Getty

Neglecting to review your mortgage

This is a big one, and it’s something of a no-brainer. And yet it never ceases to amaze just how many people never review their mortgage.

If someone offered you thousands of dollars a year for doing almost nothing, you’d take it, right? And yet hundreds of thousands of Australians are paying more than they should, each and every month.

Jonathan Kline-Spink, director of mortgage broking firm, Market Street Finance, says people should evaluate their mortgage every 12 to 24 months to see if they can secure a better deal.

“I find that just about every person I speak to that’s got an existing loan is paying 20 or 30 points too much. That can be a couple of thousand dollars a year, easily,” he says.

“Look at where it is in comparison to the market. Look at what the exit costs are going to be and if there is any benefit.”

“If your bank isn’t going to come down to where the market is, I would strongly advise speaking to someone, reviewing it and looking at all the costs of breaking a mortgage, exiting, refinancing and all that sort of stuff.”

Just like how you review your expenses, it pays to review your mortgage every year. Picture: Getty

The crackdown on interest-only loans

While interest-only loans are often most associated with investment lending, there are also owner-occupiers who are borrowing in this way.

But with APRA clamping down on interest-only loans, Kline-Spink says it’s a surefire way to end up paying significantly more, both right now and over the life of your loan.

“What I’m seeing in the market is definitely the most affordable mortgages going to owner-occupiers that are paying principal and interest,” he says.

“Interest-only repayments are attracting a pretty hefty premium right now, as are investors. For an interest-only loan the premium can be half a percent, based on standard rates.”

Comprehensive credit reporting

For years, lenders have only had access to ‘negative’ credit reporting – defaults and non-payments etc – when assessing how much of a risk your borrowing poses to them.

That is expected to change on July 1, with the Federal Government introducing laws that will require banks to also provide your good credit history to credit bureaus.

Kline-Spink says that could put more power in your hands at the negotiating table, and lead to a lower interest rate.

“We’re not quite sure how that’s going to impact mortgages, but we’ve got the treasurer saying recently that it could lead to better deals on home loans or on all lending, because lenders will be able to have a more comprehensive view of the borrower,” he says.

“It gives the lender a more comprehensive view of the borrower and could therefore lead to better pricing when they see how strong you really are as a borrower.”

Paying overs for property

Of course, you’ll always be paying off a bigger mortgage if you borrow more in the first place.

Kline-Spink says borrowers who take their budget to its maximum could find themselves significantly impacted in the coming months and years.

“Not having a good enough deposit will add lender’s mortgage insurance (LMI), which can be really substantial in a lot of cases,” he says.

“Avoiding LMI could be through a guarantor loan. There are some creative ways to limit or reduce LMI as well.”

“Also ensure you’re not overpaying for your property, which will then add more onto your mortgage. Have a strategy for auction day and have a really definite maximum that you’re willing to go to.” factors increasing your mortgage .