What to do after you’ve moved into your first house: checking rates and managing repayments

1. Review your home loan agreement

After settlement, it’s important to take the time to fully understand your home loan agreement. By this point, you’ll have already signed the contract, but now you should go over the terms in detail, focusing on key aspects like the interest rate, repayment structure, and any fees associated with your mortgage. Pay particular attention to:

a. Interest rate type

 Is your loan on a fixed or variable rate? A fixed rate means your interest rate will remain the same for a set period, while a variable rate can change with market conditions. Understanding the type of rate you have can help you anticipate changes to your repayments.

b. Repayment frequency

Are you making weekly, fortnightly, or monthly repayments? Some lenders offer flexibility, so you can choose a schedule that suits your financial situation.

c. Loan term 

How long do you have to repay your loan? Most home loans have a term of 25-30 years, but this can vary depending on your lender.

d. Fees and charges 

Look for any potential fees for late payments, account management, or other services.

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2. Check interest rates and shop around

Once you’ve settled into your new home, it’s a good time to review your interest rate annually. Interest rates can fluctuate over time, and what you initially signed up for may not always be the best deal available. Regularly checking rates and shopping around for a more competitive offer can save you thousands of dollars over the life of your loan.

Here’s what you can do:

a. Compare rates

Use online tools to compare mortgage rates from different lenders. Many financial institutions offer competitive interest rates to attract new customers, so don’t hesitate to look beyond your current lender.

b. Speak with your lender or mortgage broker

Contact your current lender or mortgage broker to see if they can offer you a better rate. If you’ve been with them for a while and have a good repayment history, they may be willing to negotiate.

c. Consider refinancing

If your current interest rate is higher than what’s available on the market, consider refinancing your mortgage. Refinancing can help you secure a lower rate, reduce your repayments, or even change the structure of your loan (e.g., switching from a variable to a fixed-rate loan).

d. Monitor market changes

Keep an eye on the Reserve Bank of Australia (RBA) cash rate and other economic indicators. These can influence interest rate movements and might impact your repayments.

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3. Manage your repayments effectively

Keeping up with your mortgage repayments is essential for maintaining your financial health and ensuring you don't risk losing your home. Here’s how you can manage your repayments effectively:

a. Set a budget

Creating a household budget is one of the best ways to stay on top of your mortgage repayments. A clear budget will help you track your income and expenses, allowing you to allocate sufficient funds to meet your mortgage obligations. Be sure to account for any other costs associated with homeownership, such as property taxes, utilities, maintenance, and insurance.

b. Pay more than the minimum repayment

If possible, try to pay more than the minimum repayment each month. By paying off your loan faster, you can save on interest and reduce the total amount you repay over the life of the loan. Even small additional payments can make a significant difference over time, especially in the early years of your mortgage.

c. Automate repayments

Set up automated repayments through your bank so you never miss a due date. Late payments can incur penalties and negatively affect your credit rating, so automating your repayments ensures they’re always made on time.

d. Consider a repayment buffer

Some lenders allow you to create a repayment buffer by paying extra on your loan. This buffer gives you flexibility in case you face financial difficulty or experience an emergency. If you have the option, it’s worth building a repayment buffer to give yourself peace of mind.

e. Make lump-sum repayments

If you receive a windfall (e.g., a tax return, work bonus, or inheritance), consider making a lump-sum repayment to reduce your loan balance. This will reduce the total interest you’ll pay and may shorten the term of your loan.

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4. Build an emergency fund

Owning a home comes with unexpected costs, so it's wise to start building an emergency fund if you haven't already. An emergency fund will help you cover unexpected repairs or financial difficulties without putting strain on your mortgage repayments. Aim to have at least three to six months’ worth of living expenses saved up in a separate account, so you’re prepared for unforeseen circumstances.

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5. Stay on top of property taxes and local rates

Don’t forget to budget for ongoing costs like property taxes and local council rates. These can add up, and it's easy to overlook them when you’re focused on your mortgage repayments. Stay informed about any changes to your property’s valuation and the corresponding taxes or fees you may be required to pay.

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The hard work doesn’t stop once you’ve settled on your first home. To ensure that you stay financially secure throughout your homeownership journey, it’s crucial to stay on top of your mortgage repayments, monitor interest rates, and manage your finances wisely. By budgeting carefully, regularly reviewing your loan’s terms, and being proactive about managing repayments, you can reduce the stress of homeownership and work towards paying off your home sooner. With the right approach, you’ll be able to enjoy your new home without financial worries.