Switching home loan lenders

Switching home loan lenders

Considering refinancing your home loan? Then you’ve come to the right place, because at RateCity you can search, compare and apply for home loans to find the best one for you. But before you consider switching lenders, there are a few things you’ll need to know. We’ve done the leg work for you by listing the tips we think will be most useful.

Equity

You’ll need to check that you have sufficient equity in your home to refinance. That’s because few home loan lenders will be willing to lend anyone 100 percent of the value of the property. Most lenders will require a deposit of some kind – five percent equity (or deposit for first time buyers) is often the requirement to be eligible for refinancing. If you have less than 20 percent equity, many lenders may require you to take out Lenders Mortgage Insurance (LMI).

What is LMI?

LMI is an insurance policy taken out to protect, not you, but the lender should you default on the home loan. While the bank takes out the policy, you pay the premium. In one of the remaining barriers to real loan portability, lenders mortgage insurance isn’t portable. That means that if you take out a new loan (even if it’s for the same property) and you have less than 20 percent equity, you may need to pay an LMI cost again. What’s worse, is that not only will you be up for another bill, you’re unlikely to get the most attractive refinancing offers because your new low level of equity by definition makes the deal riskier for a lender than if you own more of your home.

The time frame for switching

Switching a home loan isn’t trivial – it’s unlikely that you’ll knock it over in a day. But it is easier and cheaper than most players would have you believe. It’s likely to take you about a month from comparison to new loan. The costs will range from around $1000 to $2000, depending on the lender – but these costs are trending down and most borrowers typically recoup switch costs within the first year of refinancing.

Research and discussions

Finally, comparing home loans and shopping around doesn’t just have to be a way to get ready to move to a new lender. It’s also a way of negotiating with your current lender – they are more likely to enter a discussion about rates or fees with a customer who has a done their homework and seems serious about taking their business elsewhere. If they still won’t budge on rates, then you’ve already done the hard work so why not take advantage of a better home loan deal?

To compare your current home loan to the competitors visit the RateCity home loan comparison page. Use the mortgage repayment calculator to balance the figures and see if making the switch will be financially rewarding. 

 

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Learn more about home loans

Does Real Time Ratings' work for people who already have a home loan?

Yes. If you already have a mortgage you can use Real Time RatingsTM to compare your loan against the rest of the market. And if your rate changes, you can come back and check whether your loan is still competitive. If it isn’t, you’ll get the ammunition you need to negotiate a rate cut with your lender, or the resources to help you switch to a better lender.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

What is a construction loan?

A construction loan is loan taken out for the purpose of building or substantially renovating a residential property. Under this type of loan, the funds are released in stages when certain milestones in the construction process are reached. Once the building is complete, the loan will revert to a standard principal and interest mortgage.

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

Mortgage Calculator, Repayment Type

Will you pay off the amount you borrowed + interest or just the interest for a period?

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

How does a redraw facility work?

A redraw facility attached to your loan allows you to borrow back any additional repayments that you have already paid on your loan. This can be a beneficial feature because, by paying down the principal with additional repayments, you will be charged less interest. However you will still be able to access the extra money when needed.

Mortgage Calculator, Deposit

The proportion you have already saved to go towards your home. 

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.