OPINION: A FEW years ago, it used to be quite expensive to change or refinance your home loan. There were break fees and banks did everything they could to keep you tied to them forever.
It’s now three years since exit fees were removed on mortgages. Which means even if you took out a loan before then, and your exit fees were grandfathered, the period under which you would be charged for changing should have ended by now, so you have no excuse to refinance if you want or need to.
One of the drivers for refinancing is of course to get a better rate, but it’s not the only reason to consider changing mortgage providers.
Mitchell Watson is research manager at financial data provider Canstar. He says the top drivers for people changing home loans are:
– To get a better deal
– To restructure the loan
– To get a better customer experience
Lets have a look at each of these factors individually.
To get a better deal
If you’re unhappy with your rate and pretty confident that you could do better elsewhere then move! Do your sums and work out the full cost of competitors. May sure you use the comparison rate, not the headline rate, and look at comparison websites like www.canstar.com.au, which can also give you a fixed dollar cost for the first few years to compare. Don’t forget there will also be a cost for changing loans – ie cancelling one and starting another.
“The big thing is it does cost money to refinance,” Watson says.
“It can cost you anywhere up to $1000.”
To restructure the loan
If you started out with a pretty basic home loan, after a few years you might be looking for better features and flexibility such as offset accounts, split loan options and the ability to pay off lump sums (some loans don’t allow this).
Watson says the important thing to do when you are refinancing for better features is to make sure you don’t end up paying too much for all the bells and whistles, particularly if they are bells and whistles you don’t really need.
“Make sure your not paying more than you are now,” he says.
To get a better customer experience
Nobody likes being treated like a number, or not treated very well at all. It’s reason enough to change mortgage providers. But just as you should for the first two reasons, if you do decide to look for better service, make sure you don’t pay too much for it. And there is also a possibility that when you ring up your provider to let them know you are refinancing elsewhere, they could offer to equal or better that rate. You then have to put a value on your customer experience. So work out how much more you are willing to pay for better service experience, if anything, before you make that call.
When it comes down to it, you need to make sure that your refinancing will save you money and your new provider can still offer you everything your old one did, and hopefully more
Need to know
Don’t forget if your circumstances have changed since you took out your loan it might also be a bit tricky to refinance. Say, for example, you’ve gone from being a full-time employee to becoming a contractor running your own business. You won’t immediately be ruled out, but there is a good chance that you will be asked for extra information about your income status. Watson says the main thing that banks look for is longevity.
“It does depend how soon it has been since they’ve changed their employment,” he says.
By Penny Pryor.* Penny Pryor is the editor of the Switzer Super Report (http://www.switzersuperreport.com.au) and one of the main contributors to the Switzer network (http://www.switzerhomeloans.com.au). This article first appeared on the Switzer Home Loans (http://www.switzerhomeloans.com.au) website.
Property Reviewer on Australian Property Journal
