Refinancing your home loan to take advantage of a lower interest rate might save you money. But before you switch, make sure the benefits outweigh the costs. At Clear Sky Financial we can manage the whole process and show you the pros and cons, or you might like to do it yourself.
Whatever you decide, it’s important to make sure you’re getting the best deal.
Before you decide to switch:
If you’re thinking about switching home loans, you’re probably focused on getting a better interest rate. But there are other things to consider before switching.
Negotiate the length of the new loan:
Some lenders will only refinance with a new 25- or 30-year loan term. You could end up with a longer loan term than the years left to pay off your current mortgage.
The longer you have a loan, the more you’ll pay in interest. If you do decide to switch, negotiate a loan with a similar length to your current one.
Weigh up the cost of lender’s mortgage insurance:
If you have less than 20% equity in your home, you might have to pay lender’s mortgage insurance (LMI). This can increase the cost of switching and outweigh the savings you’ll get from a lower interest rate.
If you decide to switch, ask for a refund of some of the LMI from your current loan.
Compare the costs of switching your mortgage:
Get at least two different quotes on home loans for your situation.
Check the average interest rate:
Choose your loan and repayment types to see the average interest rate for new home loans.
Compare the fees and charges:
We can help you find out what’s available.
Comparison websites can be useful, but they are businesses and may make money through promoted links. Furthermore, they may not cover all your options.
Compare these fees and charges:
| Fixed rate loan | If you are on a fixed rate loan, you may need to pay a break fee. |
| Discharge (or termination) fee | A fee when you close your current loan. |
| Application fee | Upfront fee when you apply for a new loan. |
| Switching fee | A fee for refinancing internally (staying with your current lender but switching to a different loan). |
| Stamp duty | You may be liable for stamp duty when you refinance. Check with your lender. |
Smart tip: Ask the new lender to waive the application fee to get your business.
Check if you’ll save by switching:
Once you have a short list of potential loans and the fees involved, use a mortgage switching calculator to work out if you’ll save money by changing home loans. It also shows how long it will take to recover the cost of switching.
Clear Sky Case Study:
Michael and Alice consider refinancing.
Michael and Alice’s fixed rate home loan period ends in a few months and their interest rate will increase. They decide to see what other lenders are offering.
They find two loans with a lower interest rate and the features they want.
Loan A has an application fee of $600 and Loan B has an application fee of $300. Michael and Alice decide to pick Loan A because it has the lowest interest rate, which offsets the higher establishment fee.
By switching loans, they will save $84,040 ($280 a month) over the life of their 25-year loan. They will recover the switching costs in five months.
Before you decide to switch your home loan, see where we can help you:
Clear Sky Financial’s Lending Division is here to help you simplify your property journey, whether you’re purchasing, refinancing, or seeking the perfect loan to fit your needs.
Our experienced Lending Specialist, Sanna Tammila, offers personalised support tailored to your unique circumstances. Refinancing made simple; start saving today. Schedule a free, no-obligation Discovery Call with Sanna today to find the loan option that meets your unique circumstances and objectives.
Information contained in this document is considered to be true and correct at time of publication. In addition, the information provided is general information only, and does not take into account any individuals’ objectives, financial situation and needs. Before acting on any information contained herein, you should consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs.
Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/home-loans/switching-home-loans
The team at Clear Sky Financial are extremely good at what they do and their customer service is amazing.