There’s no better time than now to find a better deal on your home loan and we’ve observed the sharp rise in homeowners seeking to explore refinancing options since the beginning of the global pandemic.
And there’s good reason we’re seeing more and more mortgage holders seeking a better deal. With the total number of home loan customers who switched providers jumping by 27 per cent – from 143,664 in 2019 to 182,016 in 2020.
More than 200,000 Australian families are tipped to make the switch in 2021. But making the switch isn’t foolproof and there are common mistakes people make.
Laura Higgins, Senior Executive Leader Consumer Insights and Communication at ASIC, recently shared some important tips with ABC radio, which we’ve compiled for you below as well as some additional advice for good measure.
- GET A BETTER DEAL WITH YOUR CURRENT LENDER
When it comes to the big banks and home loans, it’s often the case that customer loyalty goes largely unrewarded. RBA data tells us that for loans written four years ago, borrowers were charged an average of 40 basis points higher interest than new loans.
So on a loan balance of $250,000, the reality is that it could cost you an additional $1,000 in interest payments each year.
“Many times, new customers are offered a better deal than existing borrowers, so if you have a home loan that is a few years old you could potentially get a better deal that saves you thousands of dollars over time,” Ms Higgins explains.
“Even if you’re happy with your current lender, it’s worth checking you’re not paying for features or add-ons you’re not using.”
- LOOK BEFORE YOU LEAP
Cashback offers and super low interest rates are just two ways lenders are enticing new customers to make the switch, which means you need to do your homework first to ensure you’re truly getting the best deal.
Glittery incentives are designed to entice customers to switch mortgages quickly, but Ms Higgins urges borrowers to look closely and weigh up the long-term costs.
“For example, it’s worth doing the maths to ensure a cashback offer still puts you ahead over the long-term when considered against other aspects of the loan, like interest rates and fees. If you decide to switch lenders, you may end up with a longer-term loan,” she said.
It’s vital to check whether you’re up for any other costs such as Lenders Mortgage Insurance (LMI) or discharge and loan arrangement fees, which can sometimes outweigh the benefit of having a lower interest rate.
“A mortgage broker can also help you compare loans and decide whether to switch,” Ms Higgins adds.
- OFFSET BUT DON’T FORGET
If you’ve been lucky enough to put some savings away and are now eyeing off low interest rates, perhaps it’s wise to try and pay off your mortgage sooner rather than later.
And as Ms Higgins notes, “Interest rates may be low now, but probably won’t be this low forever. Making some extra repayments now can benefit customers in the long term.”
But if you’re not quite in that position and are worried about tying up all your funds in your home loan, perhaps consider switching to a mortgage redraw facility or offset account, which can help you to make extra repayments but still withdraw them if you need to.
“Either of these options might work for you depending on your goals,” Ms Higgins adds.
“Not all home loans can be linked to an offset account, and often those that can may have a fee charged or a slightly higher interest rate, so it’s worth making sure you’d be saving enough in there to warrant any extra costs.”
- TO FIX OR NOT TO FIX IS NOT THE ONLY QUESTION
One of the most common big questions we field relates to whether you should consider a fixed home loan rate or not, however it’s good to know there is another option available.
The good news is that you can also choose to fix the rate for a part of your mortgage, but not all of it. Doing this allows you to lock in a low rate for a portion of your home loan, while also taking advantage of some wriggle room a variable rate can offer, including being able to make extensive additional payments.
WANT TO FIND OUT MORE?
Now really is the time to get on top of your refinancing options and see how your loans can work for you, instead of you working for them – now and well into the future. We would love to go over home loan refinancing options with you, whether that be renegotiating with your current lender or exploring your options elsewhere.