How Switching Home Loans Can Help Save You Money
Last updated on May 26th, 2022
Are you struggling to pay your mortgage? A few remedies are available to help you keep up with repayments during these challenging times. One way to save money is to refinance your home loan so you can take advantage of a lower interest rate. But before you decide to switch, weigh the pros and cons and make sure the financial benefits outweigh the costs.
Are You Considering Switching Home Loans?
The main reason people switch home loans is to get a better interest rate. So, if you’re thinking of switching, it’s most likely because you found more attractive terms. But aside from interest rates, there are other things to consider before deciding to refinance your mortgage.
1. You could ask your current lender for a better deal.
Inform your lender that you have found a different lender that offers a cheaper loan and that you are planning to switch. Your lender might reduce your current loan’s interest rate just to keep your business.
If you have at least 20% equity in your home, you are in a good position to bargain.
Having a good credit score also gives you an upper hand when negotiating new loan terms.
Read our mortgage reviews to compare your current home loan with other loans that you might want to consider.
2. Negotiate the same length of your loan.
Some lenders will only agree to refinance a home for another 25- or 30-year loan term. If you are almost halfway through your current loan, you could end up with a longer loan term than the remaining years on your existing mortgage.
If you do decide to switch to a new home loan, ask for a similar length to your current one.
3. Consider the cost of insurance.
If you have less than 20% equity in your home, you might have to pay the lender's mortgage insurance (LMI) if you switch to a new mortgage. This could negate whatever savings you'll be getting from a lower interest rate.
Before you decide to switch to a new home loan, ask for a refund of a portion of the LMI of your current loan.
Compare the Costs of Switching Your Mortgage
When searching for new mortgage options, get at least a couple of quotes from different lenders.
1. Check the average interest rate.
Our online calculator can help you figure out the average interest rate for the current month. This can help you compare home loans and repayment schemes.
2. Compare the fees and charges.
You can consult a mortgage broker or go to a comparison website to find out current fees and charges on different home loans.
When using comparison websites, one thing to keep in mind is that they make money through promoted links. This means that they might not cover all your options.
Before switching home loans, compare these fees and charges:
- Fixed-rate loan: You may need to pay a break fee if you are currently on a fixed-rate loan.
- Termination fee: You may need to pay a fee to terminate your current loan.
- Application fee: You may need to pay an upfront fee when applying for a new loan.
- Switching fee: You may need to pay a fee for switching to a different loan under the same lender.
- Stamp duty: You may be liable for stamp duty when you decide to refinance your mortgage.
3. Check how much money you'll save by switching home loans.
Make a shortlist of potential home loans with attractive interest rates and compare their fees and charges. With a mortgage switching calculator, you can check how much money you will be able to save by changing home loans. The calculator will also show how long it would take to recover your switching expenses.
Australians and those based in Australia can use our comparison tool here at Makes Cents to compare home loan options. Browse through our website today if you are looking for more news, updates and valuable insights about home loans, health and life insurance and more.
