Could a mortgage review save you thousands?

Mortgage Advisor Britt Teleiai looks at how you can save money on one of our biggest household expenses. 

When was the last time you reviewed your mortgage? 

We’re  pretty good at checking our power bills, comparing insurance quotes, cancelling subscriptions (like the Door Dash subscription  we used to order takeout that one time) and looking for ways to save money on the weekly grocery shop. 

But our mortgage is often our biggest household expense, and it can be easy to see the fixed term coming up, choose another term and carry on without stopping to check whether there’s a better deal available or whether we could be more strategic with how we repay the loan. 

A recent client review was a fabulous example of why it pays to look at your mortgage before locking in on your banking app and selecting the rate your bank offers you that day. 

Let me introduce you to *Milly and *Matt. They are existing homeowners who were coming up to review their home loan. They were happy with their bank and weren't necessarily looking to move, but they wanted to know whether they were still getting a competitive deal. 

So rather than simply refixing their current home loan, we zoomed out to look at the bigger picture. 

We considered the interest rates available, the structure of their lending, the incentives available from other main banks and, importantly, what their current bank could offer to retain their business. 

The first offer from their bank wasn't actually the best option available, so we went back to the pricing team and negotiated. Turns out they were able to match those competitive rates that the other banks were offering. 

Their mortgage rates were coming down from 6.15% to 4.79%, which made a significant difference to their repayments. But there was another saving they hadn't realised was available. 

I was also able to request a cash retention payment from their existing bank. Milly and Matt had been with the bank for around five years and had never known that asking for a retention offer was even an option. 

Once we compared the overall picture - the interest rates, the cash contribution and the effort and solicitor costs involved in refinancing - they were happy to stay with their existing bank. But we didn't stop at getting them a better interest rate… 

Their new repayments could have been reduced when their interest rate dropped, but they mentioned they were comfortable managing their current repayments andtheir income had recently significantly increased. So instead of reducing their repayments to the new minimum, we kept their fortnightly repayments the same. 

This is where a mortgage review can uncover an opportunity that isn't  immediately obvious. By keeping their repayments at the same level while paying a significantly lower interest rate, more of their regular payment will now go towards reducing the principal.  

Over the life of the loan, this could shave more than five years off the time it takes them to repay their mortgage – YAY! 

During our review they mentioned that this was something they had never considered at previous refixes. When their interest rate changed, they had simply reset their repayments to whatever the new minimum was. 

There is nothing wrong with doing that if you need the extra cash or if you’re feeling the pinch. But if you can comfortably maintain your existing repayments when your interest rate falls, keeping them the same can makea huge difference to how quickly you pay off your mortgage. 

So, what should you look at when your mortgage comes up for review? 

Don't just accept the first rate you're offered 
Your existing bank may be willing to sharpen its rate when it knows you're considering your other options. 

Ask about retention cash 
Banks can sometimes offer cash contributions to retain existing customers. Milly and Matt had been with their bank for five years and had no idea this was something they could ask about. 
These offers generally come with conditions, including keeping your lending with the bank for an agreed period of time, so it’s important to understand the terms before accepting a cash contribution. 

Compare the whole deal 
The lowest interest rate isn't always the whole story. We looked at what another bank could offer, but also considered the cashback, the costs of refinancing and the fact that the clients were happy with their existing bank. 

Think about your repayments, not just your rate 
When your interest rate drops, it's tempting to reduce your repayments. If your budget allows, keeping them at the same level can help you pay your mortgage off faster and potentially save a significant amount of interest over the life of the loan!! 

Discuss with an adviser who can look at your mortgage as a whole.Your circumstances and financial goals can change over the years, so what worked when you first took out your mortgage may not be the best strategy now. 

The biggest takeaway from the clients' experience is that a mortgage review isn't always about moving to another bank. 

Sometimes the best outcome is staying exactly where you are – but making sure you're getting the best deal available and using the opportunity to make your mortgage work harder for you. 

And sometimes, the biggest saving isn't just the interest rate. So, if your mortgage is coming up for refix,don't just look at the rate on offer and hit ‘refix’.  

Take the opportunity to review the bigger picture. The right mortgage strategy could save you tens of thousands over the life of your loan – and potentially get you to mortgage-free years sooner. 

If your mortgage is coming up for refix, or you haven't reviewed it in a while, get in touch.I’m always happy to have a chat and see if there are opportunities to make your mortgage work harder for you. 

Britt Teleiai is a mortgage adviser at Britt T Mortgages, helping New Zealanders navigate home loans, refinancing and mortgage reviews. Contact her on britt@vegalend.co.nz or 021 040 0063.