Is Now the Time to Switch Mortgage Providers?
Customer satisfaction levels for all of the four major banks in Australia have dropped significantly. This has gone hand in hand with further drops in interest rates. As a result, many people are questioning whether they should stay with their current lenders. With approximately 156 different loans in the country now having rates of 5.2% or lower, it seems that switching would be a good financial move.
A new survey by Finder has revealed that 40% of Australian borrowers have stuck with the same lender for at least ten years. For some, this is due to loyalty to their lender, others are too lazy to switch, and several simply still do not know what possibilities are out there. This is unfortunate, since switching lenders could save mortgage owners thousands of dollars. Even with this information, ABS stats have revealed that, at present, just 34% of all home loans have been refinanced. This means potentially 66% of people are paying more than they need to.
Savings When Switching Providers
For those people that are actually looking to switch, there are now various price comparison sites available that easily highlight the different deals. Numerous examples exist of people with mortgages in excess of $300,000 reducing their overall rate from around 5.7% to as little as 4.6%. This equates to a significant savings on monthly repayments, and also on the payments towards the mortgage overall.
Refinancing a mortgage means completing a lot of paperwork, and this is one of the areas that people consider to be a barrier attached to switching lenders. In actuality, by working together with a good mortgage broker, dealing with the process of switching between lenders is quite easy. In the example above, savings of $229.43 per month are possible, which equates to $82,592.87 for the full lifetime of the mortgage. That is a serious amount of money!
Costs Involved in Switching
The reality is that refinancing a mortgage can help to save thousands of dollars. Of course, there are also some costs involved. Therefore, you need to make sure that you don’t actually end up paying more because of the various fees you will incur when switching. It is reasonably easy to calculate what the potential savings are likely to be, as there are numerous calculators available for free online. Keep in mind, cost calculations are a lot more complex, due in large part, to the fact that different lenders offer different deals, each with different associated costs. Furthermore, your personal financial situation also comes into play. Below is a list of different costs that would most likely be tied to a lender switch:
- The discharge fee. In the past, this was known as the “exit fee” and it could cost thousands, as it was a percentage of the outstanding balance. Fortunately, the Australian Government has intervened, making this practice illegal. Now, the discharge fee is usually between $150 and $500. Additionally, there may be some governmental fees attached as well.
- The break fees. These fees are present if you currently have a fixed rate mortgage. In that case, the break fees are basically a penalty that you incur because you did not complete the term of your fixed rate mortgage. Depending on the term of your loan and what the current interest rate is, these fees could run in the thousands, unfortunately.
- The new application fee. This charge, which is usually $400 plus, is what you have to pay in order to get a new mortgage. Furthermore, each state has its own mortgage registration fee, which you will have to pay for your new loan construction.
- LMI (lenders mortgage insurance). LMI charges are dependent on the results of your new valuation. If a lower rate is used to valuate your property, there could be an LVR (loan to value ratio) of more than 80%.
- Stamp duty. This fee is not always attached to refinancing. There are numerous stamp duty calculators available online to help you estimate costs if you decide to go this route. Even better, this means that you can determine whether or not you would be forced to pay stamp duty and, if so, how much.
Once you have a better understanding of these costs and therefore, know how much you will be out of pocket if you choose to refinance, the next step is to actually start looking for new home deals. What follows is a simple mathematical calculation whereby you work out whether you will save more by spending on fees now, or whether those savings do not offset the fees you would incur.
Other Important Points of Consideration
Before you decide to refinance, you should:
- Try to get a better deal from your lender by negotiating with them. The home loan market is highly competitive and banks are bending over backwards to retain existing customers and attract new ones. With this in mind, if you tell your lender that you are considering switching, they may offer you an incentive to stay. Make sure, if you decide to proceed with this plan, that you have information on other options before you make this phone call.
- Get fact sheets on any loan that you may consider first. This will enable you to look at the benefits of switching, including the rates and the features, in closer detail. By having a fact sheet at hand, you will be better able to see just what the costs of switching are, and whether or not that is a good choice for you.
- Shop around as much as possible. Always make sure that you don’t accept the first deal without seeing what else is out there. Speak to brokers as well, who can help you find the lowest possible rates, whilst still keeping the features you are looking for in mind. Brokers can also be found online and they often have a number of deals already negotiated, which makes switching much easier.
Whether you are a first time buyer, moving up the property ladder, refinancing your mortgage, or investing, you should always use the services of a mortgage broker. They have access to all of the country’s different loan and lender options, giving you many different possibilities. Additionally, they can help make the switch as quick and as easily as possible.