Switching home loans – Work out if you’ll save money by switching to another mortgage

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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.

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. 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.

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.

Wealthness Pty Ltd ABN 13 231 248 112  [t/a Better Financial Planning Australia]  is a Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL No. 236523. It is important to be aware that Better Financial Planning Australia is not authorised by Infocus to provide advice relating to credit services or property advice. Infocus is not responsible for any advice outside of the scope of this authorisation and should you wish to act on any of this general information, please first seek professional financial advice.

Wealthness Pty Ltd t/as Better Financial Planning Australia will endeavour to update the website as needed. However, information can change without notice and Wealthness Pty Ltd t/as Better Financial Planning Australia does not guarantee the accuracy of information on the website, including information provided by third parties, at any time.

This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. Infocus Securities Australia Pty Ltd strongly suggests that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based upon their own personal circumstances. Although we consider the sources for this material reliable, no warranty is given and no liability is accepted for any statement or opinion or for any error or omission.

Wealthness Pty Ltd t/as Better Financial Planning Australia does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this website. Except insofar as any liability under statute cannot be excluded, Wealthness Pty Ltd t/as Better Financial Planning Australia and its employees do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person.

Wealthness Pty Ltd (ACN 613 313 250) [t/a Better Financial Planning Australia] Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL Licence No. 236523.

Source: ASIC MoneySmart
SEPTEMBER 2, 2020

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