Switching home loans? ASIC tips for refinancing
10 May 2021
Interest rates may be at record lows but that shouldn’t stop you from getting the best deal on your home loan.
Laura Higgins, ASIC’s Senior Executive Leader Consumer Insights and Communication, recently joined ABC Melbourne Drive’s host, Raf Epstein, to discuss how to make the most of your mortgage and things to consider when refinancing.
Laura noted in the last year, many people had already looked to see if they could get a better deal. Whether due to changed financial circumstances or suddenly having more time to review their options, ASIC’s mortgage calculator had record usage in 2020, Australia-wide. In Melbourne, 320,000 people used the mortgage calculator in 2020, an increase of 75% from the previous year.
This supports data from the Australian Bureau of Statistics, which shows last year, refinancing hit a record high.
Laura says, ‘When considering refinancing, the first thing you should do is ask your current lender for a better deal. Many times, new customers are offered a better deal than existing borrowers, so if you haven’t if you have a home loan that is a few years old you could get potentially better deal that saves you thousands of dollars over time.
‘Tell your current lender you are planning to switch to a cheaper loan offered by a different lender. To keep your business, your lender may reduce the interest rate on your current loan.
‘If you have at least 20% equity in your home, you'll have more to bargain with and having a good credit score will also help with negotiations.
‘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’.
There are a lot of incentives out there to switch mortgages, but Laura reminded consumers that it is important to closely compare these offers. 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.
‘If you decide to switch lenders, you may end up with a longer term loan. Also 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’.
People can compare the cost of switching home loans using Moneysmart’s Mortgage Switching Calculator. A mortgage broker can also help you compare loans and decide whether to switch but you need to ask how they’re getting paid and what’s in it for them. Visit Moneysmart for tips on using a mortgage broker.
With interest rates so low, many people are looking to pay off their mortgage faster and 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 long term’ Laura said.
‘You can still save while paying off your mortgage without a separate savings account. For example, a mortgage redraw facility will allow you to make extra repayments but withdraw them if you need to. Additionally, some mortgages come with offset accounts, where the funds you save in that account reduce the amount of interest you have to pay on the loan.
‘Either of these options might work for you depending on your goals. 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’.