Switching Home Loans
With interest rates increasing quite rapidly, homeowners are being encouraged to look around for a better deal on their home loan. ASIC has recently released some tips if you are doing so.
Ask your current lender for a better deal
Tell your current lender you are planning to switch to a cheaper loan
offered by a different lender. To keep your business, your lender may reduce the interest rate on your current loan.
If you have at least 20% equity in your home, you’ll have more to bargain with. Having a good credit score will also help with
negotiations.
Compare any loan they offer you with the other loans you’re considering switching to.
Negotiate the length of the new loan
Some lenders will only refinance with a new 25- or 30-year loan term. You could
end up with a longer loan term than the years left to pay off your current mortgage.
The longer you have a loan, the more you’ll pay in interest. If you do decide to switch, negotiate a loan with a similar length to your
current one.
Weigh up the cost of lender’s mortgage insurance
If you have less than 20% equity in your home, you might have to
pay lender’s mortgage insurance (LMI). This can increase the cost of switching and outweigh the savings you’ll get from a lower interest
rate.
If you decide to switch, ask for a refund of some of the LMI from your current loan.
Multiple comparisons
Get at least two different quotes on home loans for your situation.
Compare the fees and charges
A mortgage
broker
or a comparison website can help you find out what’s available.
Comparison websites can be useful, but they are businesses and may make money through promoted links. And they may not cover all your
options. See what to keep in mind when using comparison
websites.
Compare these fees and charges:
| Fixed rate loan |
You may be charged a break fee if you are on a fixed loan |
| Discharge (or termination) fee |
A fee when you close your current loan |
| Application fee |
Upfront fee when you apply for a new loan. You can perhaps ask your new lender to waive this in order to get your business |
| Switching fee |
A fee for refinancing internally (staying with your current lender but switching to a different loan) |
| Stamp duty | You may be liable for stamp duty when refinancing. Check with your lender |
Check if you’ll save by switching
Once you have a short list of potential loans and the fees involved, use the mortgage switching calculator to work out if you’ll save money
by changing home loans. It also shows how long it will take to recover the cost of switching by accessing the mortgage switching calculator
at www.moneysmart.gov.au
Warning: This information is of general nature only and is not intended as a personal advice. It does not take in to account your
particular investment objectives, financial situation and needs. Before making a financial decision, you should assess whether the advice
is appropriate to your individual investment objectives, financial situation and particular needs. We recommend you consult a professional
financial adviser who will assist you. Any references to past investment performance are not an indication of future investment returns.
You should also obtain a copy of and consider the Product Disclosure Statement (PDS) for any financial product mentioned before making any
decision to acquire a financial product.
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