RateCity
Switching Mortgages
While there are benefits for switching mortgages, there could be costs involved and some things you need to consider before making the switch. It can be worthwhile if you take the time to do some planning and research.
For instance, according to a Mortgage Choice 2010 Refinancers Survey of more than 1000 borrowers, almost one-quarter of those who switched mortgages saved around $300 per month or $3,600 in one year. The survey also showed that 88 percent of borrowers saved more than $50 each month by switching their home loans to a different lender.
You need to consider the following before switching mortgages to another lender:
- Early exit fees: Work out how much it will cost you to exit your current home loan. What your lender will charge you in early exit fees will depend on how long you have had your mortgage for, your balance, the type of home loan and your lender. Typically, if you break from your loan within the first few years you will be charged higher fees than what you would be if you had the loan for longer. While not all borrowers will have to pay exit fees, those that do can pay anywhere up to $5,000 or more. According to the Mortgage Choice survey, 10 percent of the borrowers paid more than $5000, while 30 percent paid from $501 to $1,000.
- Setting up a new loan: Also consider if there are any costs involved for setting up a new home loan. This will vary between financial institutions. For instance, RateCity found that application fees can average approximately $486 in 2010. We also found 16 other associated fees that could be charged such as legal fees and administration fees.
