November 16, 2010
Want to move your home loan but worried you are locked in for life? With the Australian Securities and Investments Commission (ASIC) cracking down on excessive early exit fees and several major banks slashing their mortgage exit fees, the chains around your mortgage could be getting looser.
Whether you want to switch in the first year or the 10th year of your mortgage, it is possible to switch your home loan to another provider and save, but be prepared to fork out some cash.
The costs of making the break
While the home loan application you signed is a legally binding document, the terms and conditions usually stipulate you can break out of the loan early provided any fees and charges required are paid.
The amount you will have to pay depends on several factors including how long you had your loan for, the borrowed amount, type of loan and the financial institution.
Typically the longer you have had your home loan the less you have to pay. But there will be costs involved for setting up a new home loan such as application fees, which according to RateCity research cost on average $486.
RateCity also discovered there are around 16 other types of charges, such as settlement fees and legal fees that you could be up for when establishing a new mortgage with another lender.
How to make the switch and save
If you currently have a mortgage but are tossing up whether making the switch is the right move for you, here are some tips:
- Shop around. See what rates and fees other financial institutions are offering in comparison to your mortgage and if they are less than what you are currently paying. Comparison websites such as RateCity allow you to compare home loans online to establish if you are better making the switch.
- Work out the costs. Determine how much it is going to cost you in total to close your current loan as well as set up your new one.
- Negotiate. Before you consider moving to another lender, try meeting with your current lender and negotiate your mortgage to see if you can get a better rate.
- Notify your lender. If you have made the decision to move, it is recommended that you notify your current lender before applying for your new loan.
- Apply. When you are ready and after you have spent some time researching the home loan market, apply for your new mortgage.
At the end of the day it is possible to exit from your existing mortgage, so work out if you are really better off by making the switch and do what feels right for you.