Switching home loans

Switching home loans

Refinancing your home loan to take advantage of a lower interest rate might save you money. Before you switch, make sure the benefits outweigh the costs.

Before you decide to switch

If you’re thinking about switching home loans, you’re probably focused on getting a better interest rate. But there are other things to consider before switching.

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. 

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.

Compare the costs of switching your mortgage

Get at least two different quotes on home loans for your situation.

Check the average interest rate

Choose your loan and repayment types to see the average interest rate for new home loans. Interest rates are rising, so the average rate may now be higher.

Compare the fees and charges

We can help you find out what’s available.

Comparison websites can be useful, but they are businesses and may make money through promoted links. They may not cover all your options. 

Compare these fees and charges:

Fixed rate loan

  • If you are on a fixed rate loan, you may need to pay a break fee.

Discharge (or termination) fee

  • A fee when you close your current loan.

Application fee

  • Upfront fee when you apply for a new loan.

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 you refinance. Check with your lender.

Smart tip: Ask the new lender to waive the application fee to get your business.

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.

Mortgage switching calculator

Check out how much you’ll save by changing home loans.

Case Study

Simon and Tiana consider refinancing

Simon and Tiana’s fixed rate home loan period ends in a few months and their interest rate will increase. They decide to see what other lenders are offering.

They find two loans with a lower interest rate and the features they want.

Loan A has an application fee of $600 and Loan B has an application fee of $300. Simon and Tiana decide to pick Loan A because it has the lowest interest rate, which offsets the higher establishment fee.

By switching loans they will save $84,040 ($280 a month) over the life of their 25-year loan. They will recover the switching costs in five months.

Contact us today for more information.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/home-loans/switching-home-loans

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Priyanka Kumar

Financial Adviser

Priyanka is a financial adviser with experience across various areas of advice including superannuation and retirement planning, wealth creation and personal insurance. Her education includes a Bachelor of Applied Finance from Macquarie University and a Graduate Diploma of Financial Planning from Kaplan.

Priyanka enjoys strategising and working towards creating valuable solutions for our clients. She loves meeting our clients, both existing and new, and getting to know them on a personal level and hearing the unique stories they have to share.

Ashish Thadani

Director & Financial Adviser

Financial Adviser / Director of Investlink Group & Excalibur Wealth Group

Ashish has over 20 years of experience as a financial adviser and is passionate about educating his clients on their finances and the financial strategies that he recommends to them.

With a “client comes first” philosophy for the business, Ashish operates with patience, transparency and with the best interests of his clients always in mind.

Authorised Representative No. 290396

Investlink Group Pty Ltd Corporate Authorised Representative No. 442305