Running a few simple checks on your home loan could potentially save you thousands of dollars over the life of your loan.

For many of us, paying off a home loan is likely to be one of the biggest regular expenses in our budget. And it could stay that way for up to 30 years. But that shouldn’t mean you ‘set and forget’ it for the life of the loan.

Running a few simple checks will help you decide whether your home loan is still right for you, or whether you should be looking for a better deal. Here’s how to get started.

Find out all the home loan features

Getting your head around all the types of home loans available can be confusing. It’s even more so when each of them comes with a plethora of features, making a loan appealing (or unappealing) for different reasons.

Some (generally variable-rate loans) come with redraw facilities, which can be a handy home loan feature if you’ve made extra repayments in the past and need to access that cash for an unexpected expense.

Others have an offset account, which is a bank account linked to your loan. Any cash in the account is offset daily against your home loan principal, essentially reducing the interest you pay.

These features can sound good in theory, but they may also attract additional fees. For instance, the redraw feature on some home loans may have associated fees and withdrawal limits. An offset account may have an annual fee that more basic home loans may not. It’s worthwhile checking which features you have bundled into your loan, and what they’re costing you.

Understand your home loan interest rate

What interest rate are you currently paying on your home loan? With many first-home buyers borrowing hundreds of thousands of dollars, there’s a big financial incentive to do a health check on your home loan.

Unfortunately, comparing loans is not as simple as looking at interest rates. While it’s easy to be lured into a new agreement by a rate that seems lower, like many things in life, appearances can be deceptive.

There are two rates to consider when re-evaluating the interest payable on your loan: interest rates and comparison rates.

The interest rate is the annual interest cost for borrowing money, but it doesn’t take into account any fees. The comparison rate incorporates the annual interest rate as well as most upfront and ongoing fees, providing a clearer picture of how much you’ll be up for.

If you’re looking at switching providers, it’s a good idea to use comparison rates as your guide across various offerings. However, the comparison rate is calculated based on a $150,000 principal and interest loan over a 25-year term, so it’s not necessarily an accurate rate for your circumstances.

Ask to reduce your home loan interest rate

If you find a lower interest rate on the market, you don’t automatically need to change. First, use a home loan comparison calculator to evaluate the two loan types side-by-side, and a home loan repayments calculator to estimate how much your ongoing mortgage repayments could be.

Next, you could contact your current lender and tell them you’re thinking about switching. If you have a good credit rating and more than 20% equity in your homei, you may be in a better position to negotiate.

If you’ve found a better deal and are still considering making a switch, be aware that the costs of refinancing may outweigh the savings made by switching. If you decide to go ahead, there are a number of steps to navigate when making the switch. Next, you could contact your current lender and tell them you’re thinking about switching.

Should you make the home loan switch?

If you do your homework (or get a mortgage broker to do it for you), it’s possible you’ll find a home loan option that offers a lower interest rate, lower fees, more flexible repayment options or better features than the one you have.

Get started in 3 easy steps

  1. Find out the features of your home loan
  2. Understand your home loan interest rate
  3. See if you can get a better deal, or need to switch

i Switching Home Loans

From 1 July 2021, the contributions your employer is required to make into your super fund, under the super guarantee, will increase to 10% of your before-tax income.

The super guarantee will increase from 9.5% to 10%, as planned, on 1 July 2021.

The outcome of this is that Aussie employees, who are eligible for the super guarantee, should have more savings in their super to help fund their retirement.

Below we explain what you need to know and when further increases might be expected.

What is the super guarantee?

The super guarantee (or SG for short) determines how much your employer is required to contribute into your super fund, according to the Australian government. Currently that figure is 9.5% of your before-tax income.

However, from 1 July 2021, your employer will be required to contribute a minimum of 10% of your before-tax income into your super account.

Who’s eligible for the super guarantee?

Generally, you’re eligible for SG contributions if you’re earning at least $450 before tax a month, regardless of whether you’re a full-time, part-time or casual employee, including if you’re a temporary resident.

You’re also typically eligible if you’re:

  • an employee under 18 years old, or a private or domestic worker, doing more than 30 hours a week
  • a contractor, even if you’re working under your own ABN, although this is only in some instances
  • an older employee, who might’ve already begun accessing some of their super.

You can check your eligibility using the ATO’s super guarantee eligibility decision tool.

Rules if you’re self-employed

If you’re self-employed (for example, as a sole trader), you’re typically not obligated to make SG contributions for yourself into a super fund, but that may be different if you run your business through a company or trust.

Whatever your situation, you may still consider making voluntarily contributions into super to save for your retirement.

How is the SG rate calculated?

If you’re wondering how the super guarantee is calculated, employers are required to pay a percentage (determined by the Australian government) of your ordinary time earnings into your super.

This is generally what you earn for your ordinary hours of work, including commissions, shift loading, annual leave and sick leave.

Payments that aren’t considered as part of this include overtime, unused annual leave, long service leave paid on termination of employment, and ancillary leave, which includes when you might be on jury duty.

What you might get paid while you’re on parental leave is also not taken into account. However, some companies will still choose to make SG payments for you during this time.

To calculate the amount of SG you should expect to receive from your employer, use the ATO’s estimate my super tool.

Note, the SG rate is scheduled to increase in increments and will gradually reach 12% by 1 July 2025i.

When are SG contributions paid?

If you’re eligible, your employer must make SG contributions into your super fund at least four times a year on dates determined by the ATO. Employers can also choose to do this weekly, fortnightly or monthly.

If employers fail to pay SG on time, they may have to pay the super guarantee charge. If your employer hasn’t paid your super, paid it late, or into the wrong fund, speak to the person who handles the payroll at your work.

If you’re not satisfied with what they tell you, you can lodge an unpaid super enquiry with the ATO. You’ll need to give your personal details, including your tax file number, the period relating to your enquiry and your employer’s details. You can also call the ATO on 13 10 20.

How can I keep track of my SG contributions?

You can check your SG payments by looking at your payslips and know that while super contributions may be listed on your payslip, this doesn’t always mean money has been deposited into your super account.

With that in mind, consider checking your super statements, calling your super fund or logging into your online account to see exactly what has been paid into your super.

If you’re an AMP client, you can do this by logging into My AMP, choose your super account, go to ‘transaction history’ and then select ‘contributions received’.

Other things worth noting

There are limits to how much can be contributed into your super fund, which will depend on what type of contribution you’re making. For instance, you may choose to make contributions on top of what your employer is required to make under the super guarantee.

If you exceed super contribution caps, additional tax and penalties may apply.

Whatever your age, if you’ve ever had questions about your retirement savings we are here to help.

©AWM Services Pty Ltd. First published June 2021