Want to switch home loans? Here are ASIC's top tips for refinancing

With interest rates at record low levels, we’ve seen a big increase in homeowners wanting to refinance this year. So this week we’ll look at some of ASIC’s top tips for refinancing, plus some of our own for good measure.⁣

More and more mortgage holders are looking for a better deal on their home loan.⁣

According to ABS data, the total number of home loan customers who switched providers last year increased by 27% – from 143,664 in 2019 to 182,016 in 2020.⁣

And a further 200,000 Australian families are expected to switch lenders and save in 2021.⁣

But there’s switching lenders the wrong way, and switching lenders the right way.⁣

Fortunately, Laura Higgins, ASIC’s Senior Executive Leader Consumer Insights and Communication, recently shared some important tips with ABC radio, which we’ve compiled for you below.⁣

👉 1. See if your current lender can cut you a better deal 👈⁣

Here’s the thing about the big banks and home loans: customer loyalty is rarely rewarded.⁣

In fact, the RBA found that for loans written four years ago, borrowers were charged an average of 40 basis points higher interest than new loans.⁣

For a loan balance of $250,000, that could cost you an extra $1,000 in interest payments per year.⁣

“Many times, new customers are offered a better deal than existing borrowers, so if you have a home loan that is a few years old you could potentially get a better deal that saves you thousands of dollars over time,” explains Ms Higgins.⁣

“Even if you’re happy with your current lender, it’s worth checking you’re not paying for features or add-ons you’re not using.”⁣

👉 2. Don’t jump at the easy money: do the maths 👈⁣

There are a lot of incentives out there to entice you to switch mortgages quickly, such as cashback offers or very low-interest rates.⁣

But Ms Higgins urges borrowers to closely compare these offers with the long term costs.⁣

“For example, it’s worth doing the maths to ensure a cashback offer still puts you ahead over the long term when considered against other aspects of the loan, like interest rates and fees,” she explains.⁣

“If you decide to switch lenders, you may end up with a longer-term loan.⁣

It’s also important to consider whether lenders mortgage insurance or other costs, like discharge and loan arrangement fees, may be payable.⁣

“These additional costs can outweigh the benefit of a lower interest rate,” she adds.⁣

“A mortgage broker can also help you compare loans and decide whether to switch.”⁣

Which is very true, if we do say so ourselves!⁣

👉 3. Consider switching to an offset account or redraw facility option 👈⁣

With interest rates so low, many borrowers are aiming to pay off their mortgage faster by making extra repayments.⁣

“Interest rates may be low now, but probably won’t be this low forever. Making some extra repayments now can benefit customers in the long term,” says Ms Higgins.⁣

But if you’re worried about tying up all your funds in your home loan, then you can consider switching to a mortgage redraw facility or offset account, which can allow you to make extra repayments but withdraw them if you need to.⁣

“Either of these options might work for you depending on your goals,” Ms Higgins adds.⁣

“Not all home loans can be linked to an offset account, and often those that can may have a fee charged or a slightly higher interest rate, so it’s worth making sure you’d be saving enough in there to warrant any extra costs.”⁣

👇 4. To fix the rate or not? Or both? 👇⁣

Last but not least, a refinancing tip that we think is worth considering in this climate of record-low interest rates (which probably won’t be around forever).⁣

One of the most common ‘big decision’ questions we get asked when it comes to refinancing is: should I fix my home loan rate or not?⁣

But did you know a third option exists?⁣

Yep, you can fix the rate on some of your mortgage, but not all of it.⁣

This allows you to lock in a low rate for a portion of your home loan, while also taking advantage of some of the flexibility that a variable rate can offer, such as the ability to make extensive additional payments.⁣

If you’d like to know more about it – or any of the other refinancing tips in this article – then get in touch today.⁣

We’d be more than happy to help you refinance your home loan, whether that be renegotiating with your current lender or exploring your options elsewhere