Five tips before refinancing your home loan
Not happy with the service your lender provides, or looking to get a better deal on your home loan? Refinancing or switching lenders may be the answer – and it’s a lot easier than you might think.
The numbers alone are compelling. If you refinanced a $250,000 home loan from a variable rate of 4.54% p.a. to 4.29% p.a., that 0.25% drop might not seem like a big deal, or worth switching for, but it could save more than $10,000 over the life of a 25 year loan.
Yet, your hip pocket might not be the only thing to benefit from a smart switch, as he gives his tips for those about to re-sign on the dotted line.
- Think outside the square
If you’re looking to switch, rather than just shopping around the usual Big Four banks, consider moving your home loan to a credit union or mutual bank. You’ll still get truly competitive rates and fees – often better than the Big Four – but just as importantly you’ll be banking with an organisation with your interests at heart.
Banks have an inherent tension between maximising returns for their shareholders and doing the right thing by their customers. Customer-owned banking organisations such as credit unions exist purely to serve members.
- Look at the big picture
Much may have changed in your life and in the world around you since you bought your home, so ask yourself if your home loan reflects your current circumstances.
Refinancing with a different financial institution could be the right choice for you if you want to consolidate your debts, if your circumstances have changed, if you want to reduce your repayments, if you’re planning to renovate, or if you’re unhappy with the service you’ve been provided.
For example, if your fixed rate loan is at maturity, you’ll often revert to the standard variable rate which might be higher, so it would definitely pay to review your arrangements.
- Weigh up your options
Don’t be put off by concerns that it’s all too hard or you’ll be hit with lots of fees if you leave a lender.
The Government has banned lenders from charging exit fees on loans established after 30 June 2011, though if your loan is fixed, you may need to pay a break fee if you want to leave early.
While you’ll need to take into account the start-up fees for a new loan, such as application, settlement, valuation and Government mortgage fees, these are all fairly standard and could be relatively small in the context of the savings you could make over the longer term with a more competitive offer.
Comparison rates are a very helpful way to compare apples with apples when it comes to home loans. They standardise the true cost of a loan so you can see what the actual cost will be, including fees, not just the annual interest rate.
A good lender will outline all these considerations for you, so that you can really weigh up your options before you switch – and they’ll sort out all the paperwork with your old lender if you decide to switch, too.
- Talk the talk and walk the walk
Before you leave your banking organisation, it’s always worthwhile asking your current provider if they can give you a better deal, match or beat competitor offers. Visit comparison websites such as Mozo and Finder and arm yourself with better advertised offers and give them the chance to retain your business.
Sometimes having your home loan and other accounts with the same financial institution can save you money every month with fee waivers and discounts on products and services, too. So ask whether you’re eligible for a better deal by doing more with them.
And if you’re not satisfied with their response, be prepared to walk.
There are a lot of different home loans available: fixed, variable, split, offset, interest-only, investment loans, line of credit loans and introductory rates – so find a loan that’s right for you.
If you’re comfortably making your repayments, switching to a home loan that allows you to make unlimited extra repayments without any fees could help you pay off your loan sooner. Similarly, for those juggling some debt, consolidating your loans could make them easier to manage and pay off.
The right lender will work to tailor a loan to best suit your financial situation now, as well as your goals in the short and long term.