RateCity puts financial institutions to the test when it comes to switching home loans.
August 20, 2010
Do you have a mortgage but want to ensure you have the best deal available? One way to achieve this is by switching loans to receive a better rate. But how is this even possible if some financial institutions make it so hard to make the change?
RateCity recently compiled a Switching Scorecard, showing the “switchability ranking” on the level of difficulty for customers to switch home loans and other financial products. The scorecard gave an overall general view, which looked at a range of criteria including convenience, level of transparency and costs involved.
Home loans rated difficult to switch
The results of the scorecard showed that home loans had a poor “switchability” rating and are one of the most difficult financial products to switch due to detailed paperwork and the fees and charges.
Damian Smith, RateCity’s CEO, says “The large size of the contracts as well as the costs involved with closing and opening a home loan are the primary reasons for its ‘poor’ rating.”
According to RateCity’s research, the average fee for a home loan application is $486 and average discharge fees were $302. Break costs will vary depending on how long you have had the loan for and the balance owing, plus there are 16 other associated charges that you could be hit with including legal fees, valuation, settlement fees, ongoing and administration fees.
If your home loan is part of a package deal with the one institution, it could make it more difficult to switch loans because of the low fees or discounted rates offered in the package, says Smith.
“Breaking some home loans can also mean that you may need to switch all of your other products like your transaction account and credit card if they were opened in a package. This is because once you switch loans, your fees and rates may increase on your other accounts and are not worth keeping.”
More regulation needed
The scorecard showed that most financial institutions could do better with being more transparent and helping customers to switch accounts.
Currently there is not enough regulation and consistency across financial institutions, so many definitions and fees may be different between institutions. For instance, RateCity monitors over 30 different fees just for home loans however many of these could be the same type of fee but is called something different by each company such as documentation fee and administration fee.
The commonly used ‘standard variable rate‘ is one example that has no set definition and can be abused and used differently by lenders.
If you are interested in switching your mortgage, check out RateCity’s home loan comparison to find one with a lower interest rate and lower fees. Speak to your current lender before you make the switch to see the costs involved and work out if is worth it.