September 17, 2010
Moving your home loan from one lender to another isn’t always as easy as one, two, three. There could be costs involved, decisions to make and sometimes the whole process can end up costing you more. But with some careful planning and by doing some research, switching lenders can be worthwhile.
Make the switch and save
According to a Mortgage Choice 2010 Refinancers Survey of more than 1000 borrowers, almost one-quarter who switched to a different mortgage saved about $300 per month by doing so. After one year that saving equals $3600. If you think about what that could mean for your entire loan term, after 25 years you could be $90,000 better off.
Mortgage Choice also found that 88 percent of borrowers made a saving of more than $50 each month by switching to a different lender. It might not sound like much, but after 25 years that could be $15,000.
You do need to factor in not only the costs of exiting your current home loan but also the costs of setting up a new one.
The costs for exiting early from a home loan will depend on how long you have had your mortgage for, how much you have owing, what type of home loan you have and which lender you are with. Typically, if you try to break from your loan within the first few years you will be penalised heavier than what you would be if you had the loan for longer.
While some borrowers may not pay any exit fees, for those that do will pay anywhere up to more than $5000. According to the Mortgage Choice survey, 10 percent of the borrowers who did pay exit fees paid more than $5000, while the largest portion, 30 percent paid from $501 to $1000.
The costs involved for starting up a new home loan can include application fees which according to RateCity can average approximately $486. RateCity found 16 other associated fees that your lender could charge you including legal fees and administration fees.
Making the choice
If you are thinking of making the switch, keep your eye on the market and see what other lenders are offering. One of the best ways to do this is to compare home loans online, as you can easily keep track of interest rates and fees to see how your mortgage measures up
It is ultimately up to you which lender you decide to go with, but you can apply for another loan online or take the information you found on comparison sites to your current lender and ask them if they can do a better deal than what you are currently getting.
Make sure you find out all the fees that are involved for setting up your new loan and be sure to read the product disclosure statement (PDS) before applying.