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Inertia costs Aussies thousands

Inertia costs Aussies thousands

A third of Australians believe it’s too time-consuming and costly to switch banks, new research shows.

Nab-owned UBank surveyed more than 1000 Australians and found that around 40 percent do not even know the interest rate they are paying on their home loan.

Alex Twigg, UBank‘s general manager, said Australians remained apprehensive when it comes to shopping around for a better home loan deal.

“The apathy syndrome is about not investing time or effort because it’s all too hard,” he said. “The reality is switching is really simple, it’s really quick and you can make really big savings fast.”

Michelle Hutchison, spokeswoman for financial comparison website RateCity, said if you’re thinking that it’s all too hard to switch and not worth it financially, some simple math should change your mind.

“The average of the big four banks’ standard variable home loan rates is 6.82 percent. One of the lowest rates on the market right now is 5.62 percent. So if you had a $300,000 home loan and switched from the higher rate to the lower one, you could potentially save around $222 in monthly repayments and more than $66,600 over 25 years,” she said.

Mortgage and Finance Association of Australia chief executive Phil Naylor said borrowers contemplating switching are often unsure whether they can get a better deal elsewhere.

“I think the real issue is where are you going to switch to,” he told News Ltd.

There are thousands of home loan products to choose from over 100 lenders, which can be confronting for borrowers, according to Hutchison.

“That’s why the federal government introduced the home loan facts sheet initiative, a standardised document detailing information about the mortgage from the interest rate, fees and features to the total cost of the loan. Or you can do it all online at a comparison site such as RateCity,” she said.

Comparing home loans can simply be a way to negotiate a better rate with your existing lender too, she added.

“Take your research back to your lender and ask for a better deal. If you can show that you’re serious about taking your business elsewhere your lender will take notice, and if they can’t reduce your rate then consider switching because by now you’ve already done much of the hard work,” she said.

Since the ban on home loan exist fees, switching your mortgage is simpler. But beware that there are still some costs involved with establishing a new home loan, on average these costs are around $700.

“But even after some loan set-up costs, you’d be well ahead inside the first year – so if you need to spend a couple of hours researching home loan options, then a few days negotiating and doing the paperwork, that’s probably the best return on your time you’ll see all year.”

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Learn more about home loans

How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.  

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.

 

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.