- 13 Jan, 2017

The Price of Home Loan Loyalty Time to Make the Switch?

Often when taking out a home loan, the thought of switching lenders later does not enter your mind. This situation occurs because you research the market when you first look for a home loan. Then you forget about your home loan, so you do not check to make sure you have got the best deal. But, this tactic could cost you thousands over the lifetime of your mortgage.

Mortgage Research

The big four banks have a mortgage rate of around 5.03%. However, the best rate on the market, at present, is 3.71 % (3.72% comparison rate) with Lender B*. On a $500,000 loan with a loan term of 30 years, paying the lower rate means you could save $2,304 in monthly interest repayments and $140,055 over the life of the loan**.

Many homeowners trust the big four banks, and the banks rely on this loyalty to gain your business. But, this does not mean that they are giving you the best deals. Therefore, it is vital you shop around and compare lenders every 2-years to ensure you are getting the best value.

How to Avoid Paying the Price of Home Loan Loyalty

If you feel you might be paying too much for your mortgage, then its time to look at your options. Here are a few tips to get you started:

1. Compare Lenders. While interest rates are low, think about your future and preserving this rate for as long as possible. Consequently, look at your existing home loan critically. Write down its defining points interest rate, features and costs then compare this to similar loans on the market.

2. Review the Costs. All home loans have costs, such as an application fee for a new loan and a discharge fee when exiting an old loan. The key to saving when refinancing is to calculate all costs to make sure the switch is practical long-term. So, if you do not really make any saving after costs, then stay with your existing lender.

3. Evaluate Feature Use. There are many home loans features, such as an offset account and an extra repayment facility. But, not everyone will use these. Thus, it is important to evaluate what you will and will not use prior to you selecting any features. As these features can be costly if you do not put them to good use.

Most home loan features appear to be free, but in fact, your lender charges you for them by increasing your interest rate. Features such an offset account can save you money by reducing your monthly interest. But, if you are not using this feature then you may be paying a higher rate of interest than needed.

Nevertheless, if you are not using features, then consider a no-frills home loan which gives you the lowest interest rate. Just remember that these loans can sometimes restrict how much you can pay off your loan.

4. Build a Mortgage Shopping List.Work out which home loans represent the best value and decide what features you will use. Afterwards, approach the lender directly or a broker. Next, discuss the terms and conditions of the loan you like and shop around to get the best rate. Before you sign a contract, calculate your costs and how much you will save over the term of your loan. Always ask about loan terms and conditions, and if there are any hidden costs.

Overall, do your homework and patiently search for exactly what you want. Many financial experts suggest finding a home loan that is at least a percent less than your current loan. Such a loan will allow you to save when refinancing. Though, if this is not the case, then your existing loan may be more cost effective.

* Bank Australia

** These results are based on the information provided and do not constitute financial advice.

Terms and conditions, fees and charges and normal lending criteria apply. Loan Repayments are an estimate only and exclude fees. Comparison rate is based on a loan of $150,000 over 25 years.

WARNING: This comparison rate is true only for the example or examples given and may not include all fees and charges. Different terms, fees and other loan amounts may result in a different comparison rate.

Approximate Savings is the difference between the repayment of the existing loan and the new advertised interest rate, and is based on the loan term stated. It assumes interest rates do not change during this period, and it does not include ongoing fees.

Discharge fees, lenders mortgage insurance, and break costs are not considered, and need to be obtained from your lender. This does not constitute a quote or pre-approval.

(Figures based on information at February 6 2017)


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