How to switch your home loan
If you wish to benefit by having the lowest possible interest rate on your home loan, you may have to switch from your existing lender to a new one.
If you find that a gap has developed between the interest rate your bank charges you and the one it charges its new customers, or between your rate and that being charged by other lenders, your situation may be ripe for switching your home loan.
This is an assessment all borrowers should do regularly, either by self-assessment, or via annual reviews with your mortgage broker. The easiest option is negotiating with your existing bank. If your payment record is good, the bank may be reluctant to lose you as a customer and agree to lower your rate. You can either do this directly with your bank, or enlist the help of a mortgage broker. If your home loan was originally obtained through a mortgage broker than they should assist in the negotiations free of charge, if you do not have an existing relationship; than contacting a mortgage broker to negotiate with your existing lender will only cost a nominal fee, generally around $250. This is because mortgage brokers are paid a commission by the bank only when a new loan is established, not when negotiating an existing loan.
Regardless of the fee, enlisting a mortgage broker is advised, by having a broker negotiate on your behalf the lenders know you are serious about exploring your options, this fact alone can yield significantly more impressive results.
Only if things don’t work out with your existing bank should you consider shifting to a new lender. If you aren’t using a mortgage broker you will need to undertake the research yourself. Visit the different banks and lenders websites to check out the interest rates offered, be sure to check the fees and charges, low interest rates can sometimes disguise large ongoing fees. Find the most competitive and consider shifting to them.
People who have a long term left on their home loan should consider switching. It may not be worthwhile for those who have only three or four years left, as the ongoing savings may not outweigh the costs to switch.
Fixing is always a popular option, especially in the current low interest rate climate. Keep an eye on ‘Roll to Rates’, these are the industry term given to the variable rate you will be paying at the end of the fixed period. “Some lenders will attempt to get you with a low 3.99% fixed rate only to revert to a 5-6% interest rate after 3 years” Chris Maguire.
Banks and Lenders cannot charge a penalty fee for ending a variable rate loan, they can however on-charge legal and administrative charges, generally around $350. Other fees you may need to pay include; application fees to the new lender; fees to state government for mortgage registration and discharge; valuation costs.
Be sure to run the calculations and ensure the lower interest rate will offset the cost of switching, if you enlisted the help of a mortgage broker this will be done for you.
If you do switch lenders; the settlement process when switching lenders is quite simple, the transactions between your old and new lender can take place electronically behind the scenes meaning there is very little that you need to attend to during the changeover period.