Home Loans: Should You Make the Switch?

Switching home loans could potentially save you thousands of dollars in interest and allow you to take advantage of different features that you currently don’t have access to. However, before deciding, always check that the benefits are worth the fees you’ll be facing for leaving one loan and taking up another.

Why should you consider switching?

With thousands of home loans on the market, the chances are at least one of them offers a lower interest rate, lower fees, more flexible repayment options and better features compared to your current home loan.

However, accompanied by the many costs of refinancing, is it worth it?

Shop around

Research what other loans are available from different lenders – a mortgage broker has access to a wide variety and can help determine what the other lenders are offering and if they’ll suit your circumstances.

Your broker will compare the interest rates, fees, features and repayment amount, and figure out whether any of them offer you a better deal than your current loan. Make sure you check the features to ensure you are getting what you want and not paying for the ones you don’t need.

Ask your current lender to do better

Your broker can also let your current lender know you are planning to switch to a cheaper loan offered by another lender. The lender might suggest an alternative loan at a more affordable rate or offer to reduce the interest rate on your current loan to keep your business. The broker can then compare the loan or discount they offer with the other loans you are considering.

Keep in mind that a discount below the listed interest rate will often be available, so speak to your mortgage broker to make sure you get the best deal.

Work out the costs of switching

Be aware of the exit, break and start-up fees. Lenders are legally not allowed to charge exit fees on loans taken out after 30th June 2011. However, if you took out a loan before 1st July 2011, you will need to find out if your lender charges exit fees on your loan. If you are on a fixed rate loan, you may need to pay a break fee. Don’t forget to also factor in the cost of the start-up fees on a new loan.

Lenders Mortgage Insurance (LMI)

LMI is a type of mortgage insurance that credit providers take out to protect themselves from borrowers who are unable to make repayments. If you paid the LMI on your current loan, you would need to find out if you have sufficient equity in your home to avoid paying it again.

If your loan is more than 80% of the current value of your home, you may need to pay LMI again with a new lender – especially if you are planning on increasing the loan amount. You need to keep in mind that it can significantly increase the cost of switching your loan.

If you switch your loan within the first year or two, you may be eligible for a refund on some of the LMI premium you paid on your current loan.

Options to consider if switching is not worthwhile

•    Make additional repayments

•    Make more frequent repayments

•    Consolidate multiple loans in one manageable account

At Select, we offer no-obligation, quality, and free home loan advice to help you reach your financial goals. Give us a call on (08) 9417 3399 to talk to us about your financial options.