While it may bring back bad memories of trying to get your first home loan, switching home loans doesnt need to be difficult, especially if you have a sound credit history. Plus, switching home loans can potentially save you thousands of dollars over the term of your home loan. This is providing you do your homework and maths before you make any changes, and certainly a mortgage broker can assess your situation and assist you every step of the way. Lets look at how you can switch home loans with minimal effort and maximum efficiency.
Review Your Existing Home Loan
If youve had your existing home loan for a number of years, then youll not only be older and wiser, but youve probably got more assets and have a fair bit of equity in your home. This equals bargaining power when it comes to getting a better deal on your mortgage, it also means that in a highly competitive mortgage market you can put a little pressure on your existing lender, especially if youve got an excellent employment history. So if you havent reviewed your mortgage lately then its time to start.
When you review your home loan you make yourself aware of your current interest rate, your home loan features, and your lenders customer service, you also get to compare your current home loan to whats available in the market. This tends to open your eyes to changes that have occurred in the home loan industry, and it makes you wonder if you can get a better deal than you already have.
Reviewing your existing home loan also makes you consider what has changed in your life since you first took out your home loan, both in a financial and personal sense. By reviewing your home loan you may even find that its not your home loan thats not meeting your needs, but your lender thats letting you down.
Reviewing Your Lender
There are a number of reasons why a borrower chooses to use another lender. The most common being:
Your lender fails to reduce rates when the Reserve Bank lowers the official cash rate or they take a long time to pass on rate cuts.
Your existing lender doesnt seem to give you the same offer they give to other borrowers.
The interest rate youre being charged by your lender is significantly higher than other lenders, and your existing lender refuses to give you a better deal.
Your existing lender has poor or non-existing customer service and doesnt seem to want to answer your questions when you have them.
If your lender doesnt meet your expectations then it may be time to start shopping for a new home loan.
Shopping Around for a New Home Loan
When you shop around for a new home loan there are a number of costs that you need to take into account so that you can make a sound decision before switching your home loan product or lender. These costs are as follows:
Compare the interest rates, fees and features of your existing home loan and other home loans on the market.
Look at break fees from your existing loan, the establishment costs of new loans and the cost of your new lender having to value your property before offering you a loan.
Also consider ongoing loan charges and fees, and if you need lenders mortgage insurance.
Lastly, consider home loan durations. Your existing home loan may only have a number of years left on it before its considered paid off, but when you take out a new home loan this is usually over 25 to 30 years. Therefore, by switching home loans youll reduce your home loan repayment. But, youll also increase the number of years youll have your loan for, which means that youll pay more interest over the term of your loan.
Consider Your Existing Circumstances
You also need to consider if your circumstances have changed since you first took out your existing home loan. So before you make a move ask yourself these questions:
Do you have more children?
If youre in a partnership, are you both still working or is there only one of you working now?
Have you changed jobs or taken a pay cut?
If youve had a change in the number of dependants you support or your income is not as high as when you first took out your home loan, then these changes may reduce your borrowing power. This may make it harder for you to secure a home loan for the amount you need if you switch home loan products or lenders.
If after reviewing your home loan or lender you find that its not viable for you to switch, then consider ways that you can reduce your home loan faster. Some great ways to pay more off your home loan each month are:
To have your loan payments taken out more frequently, such as weekly.
Or consolidate your debts, reduce your monthly payment and then pay more off when you can.
Are you seeking to refinance your home loan in the near future? Then have a chat to eChoice today, we can help you with a comparison of home loans and lenders.
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!