When it comes to refinancing our home loan many of us shop for the cheapest interest rate, but we often forget to look at fees and charges, home loan features and comparison rates. This oversight on our part can cost us thousands over the term of our loan.
What Fees and Charges are Associated with a Home Loan?
The most common fees and charges that youll encounter when taking out a home loan are:
1. Ongoing costs Monthly account keeping fees, annual charges and statement fees can cost between $60 and $800 a year and are charged monthly.
2. Upfront fees Mortgage title search fees, new account and loan establishment charges and stamp duty can add thousands to the cost of your home loan.
3. Discharge fee A fee that is charged when a mortgage ends or is paid out. This can be several hundred dollars.
4. Break fee If you have a fixed loan and will break your term due to refinancing, then you may have to pay a break fee. Typically a break fee is only charged if the rate you borrowed at, when you first took out your home loan, was higher than the current interest rate. This is because it cost your lender more to finance your loan when you first took it out and theyre expecting to make a return over the fixed period thats left on your home loan term. But, if you break your home loan contract then your lender will be left out-of-pocket. To recoup their cost, your lender will charge you a fee that is based on the term you have left on your home loan at the fixed rate. This can add thousands of dollars to the cost of your home loan.
5. Home valuation When you switch lenders they will need to value your home to ensure that it is worth what you want to borrow. A home valuation can cost up to $800.
What Home Loan Features are Available?
There are a range of home loan features on offer. Two of the most popular are an offset account and a redraw facility as they allow you to reduce your home loan interest, and to save over the term of your loan.
Offset account An offset account is linked to your daily savings account with any funds held in this account then offsetting the amount of interest that your mortgage incurs. Home loan interest is typically calculated daily, therefore the more money you hold in your offset account, for longer, the cheaper your home loan interest will be.
Redraw facility A home loan redraw facility typically allows you to pay more off your home loan over the term of your loan, with this extra money being available to be redrawn at a later date.
How to Make the Most of Lower Interest Rates by Refinancing
According to research, one in three Australians have a home loan, but most of these borrowers have not had a home loan check-up. However, with interest rates being at their lowest in over 50 years the home loan market is super competitive, which means that now is the right time to evaluate your home loan to ensure youre getting the best possible interest rate. You can do this by:
1. Reviewing your existing home loan Check fees and charges and your interest rate. Know what features your home loan has, the frequency of your payment and how much you pay per week.
At present, the lowest home loan rate on offer is 3.98 percent for a $300,000 30 year home loan, and 3.94 percent for a 3 year fixed rate loan. If youre paying more than a percent higher than this, then its time to think about switching.
2. Having your home valued Before you make the switch to a new home loan, have your home valued. A local real estate agent can usually give you an estimate of what your home is worth. Knowing what your home is valued at will enable you to calculate the loan-to-value ratio of your property. If the ratio is over 80 percent, then you may have to pay lenders mortgage insurance (LMI), which can cost thousands.
3. Seeking professional advice If everything looks favourable then ask a mortgage broker to review your home loan and confirm your situation. You can also ask the mortgage broker to compare home loan products for you to ensure that you find the best possible home loan deal for you and your circumstances. Once you know the facts and are armed with information, then contact your existing lender and ask if they can give you a better deal. Some lenders will come to the party and will try to match interest rates and package deals, while other will refuse to budge.
4. Calculating your costs Look at the comparison rate of all home loan products before you make a move to switch your home loan. The comparison rate gives you a true indication of borrowing costs. Know what it will cost for you to exit your existing loan. Make sure you add-up the costs of home loan establishment fees, annual charges and title searches, as well as home valuation costs.
5. Estimating your savings, then making a move Financial experts suggest that to make a saving on your home loan, over its lifetime, you need to secure an interest rate that is a percent or more, less than your existing home loan. For example, the table below shows you how much you can save on a $300,000 home loan over 30 years if you reduce your interest rate to 3.99 percent.
|Interest Rate||Weekly Payment||Annual Savings Made|
Do you want to compare home loans and find the best deal? Then contact eChoice, we can help you.
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!