Switching home loans
Not so long ago the vast majority of borrowers stuck with their initial lenders throughout the duration of their home loans; however, during the last decade around a million Australians have opted to switch providers partway through, often getting a better deal as a result. It’s now easier to switch than ever before, and though it isn’t the best option for everybody, there are circumstances in which it can save you a lot of money. Could it be right for you?
Why switch lender?
Although you may have spent a long time finding the best terms available when you originally took out your loan, the market will have changed since then and it’s quite possible that another lender’s terms will now be better. What’s more, some lenders offer special terms and bonuses to borrowers who switch. This means that switching is often a better way to change your loan terms than simple refinancing.
Just as the markets have undergone change, you may find that your personal circumstances have changed as well. For instance, you might now be in a position to pay your loan off more quickly, reducing the overall cost.
When should you switch?
Whatever you’re shopping for, it’s always better to do it at a time when sellers are under pressure and are anxious not to miss out on your custom. This applies just as much when it comes to financial products. When the market is highly competitive for lenders (which roughly corresponds with slumps or delays in expected rises in the housing market, a sign that fewer people are borrowing), you can get much better deals.
Getting it right is just as critical when you’re switching home loans as it is when you first go looking for a loan, so take your time to make sure you can find a good value product. Once you’ve done so, talk to your current lender about your intentions, as they may offer you a better deal in an attempt to get you to stay. Bear in mind that if you have fixed interest rates then you may have to pay hefty charges to end your current arrangement, and if you have under 20 per cent equity you may be required to pay mortgage insurance.
Pros and cons of switching
You could pay less interest or pay off your loan more quickly;
You could get access to extra features that better suit your circumstances;
You could benefit from introductory rates offered by your new lender;
Depending on the loan you have, there may be charges for leaving your current lender;
You’ll need to set aside time for researching loans and finding a good deal.