Think you might benefit from refinancing? Make sure you don’t fall into the fee trap. Read our tips for getting it right.
1. Understand all the fees costs and charges
- If your loan was approved before 1 July 2011, you may be charged an exit (or “deferred establishment”) fee.
- If you have a fixed rate loan, and it was set when rates were higher, then the lender will calculate a cost based on the change in interest rates. If your fixed rate period is nearly over though, it may be relatively small. Make sure you contact your existing lender and ask for a quote before you proceed.
- New lenders may require a property valuation and if the value has dropped, you may incur additional mortgage insurance costs.
- Other costs include mortgage discharge fees and charges, and new application fees and mortgage registration charges.
- Ask your existing lender for a quote for all fees and charges associated with discharging your current loan.
2. Shop around
Have a look at comparison websites and contact a broker. Make sure you have a feel for the different features and rates on offer — even if you then use the information to go back to your existing lender.
Here are some comparison websites to get you started:
3. Talk to your current lender
Once you have a feel for what is available, talk to your existing lender. Ask them if they can provide you with the loan you’re looking for.
It’s often cheaper to switch loans with an existing lender. You may be able to avoid some of the fees and charges, and as an existing customer, you may be offered a better rate.
4. Ask for ‘key fact sheets’ from both your existing lender and potential new lenders.
By law, lenders must provide these if requested and they provide an excellent summary of the most important aspect of the loan, including:
- the total amount to be paid over the life of the loan
- how much you will ultimately repay per $1 of borrowing
- ongoing fees
- repayments per month and year
- what happens to your repayments when any fixed rate period ends
- what happens to your repayments if interest rates go up
- how you could repay your loan faster
5. Compare the loans to narrow the field
Use a checklist like this one to compare your loan alternatives.
6. Use the Mortgage Switching Calculator
Try the moneysmart.gov.au calculator for a detailed comparison of your existing loan and the new loan you are contemplating.
Switching home loans could save you money and give you the flexibility you need to allow you to better manage your finances, but you may end up worse off if you’re not careful. Read Refinancing Pros and Cons before you decide.