Before making the decision to switch, it’s important to give your current lender an opportunity to offer you a better deal
There are costs involved when switching your mortgage to another lender, so you’ll need to work out if you’ll save money by doing this
Once you have an idea of which mortgage providers you’re considering switching to, crunch the numbers with an online mortgage switching calculator.
It’s no surprise that many people are looking to switch their mortgage to another provider with interest rates continuing to rise.
Switching mortgage providers can be a smart move if you’re looking to reduce your interest rate, but before you make the switch, it’s important to do your homework to ensure the benefits outweigh the costs.
Lending Specialist Manager, Claire Charlton shares her tips.
Tip 1: Ask your current lender for a better deal before switching
Before making the decision to switch, it’s important to give your current lender an opportunity to offer you a better deal, says Claire.
“When you switch your mortgage to a new lender, it will be treated as a new application which means your property will need to be valued again and you’ll be required to pay new application fees.
“You may be able to save yourself some time by speaking initially to your current lender to see if you can negotiate a better rate. If you can agree to a better deal, compare it to other offers on the market and don’t forget to ask about any additional fees and costs.”
Tip 2: Consider the timeframe for the new loan
“If you opt for a home loan with a lower interest rate and a longer mortgage term, you may well pay lower monthly repayments but over the long-term, you’ll end up paying more interest.
“If you do decide to switch your mortgage with another lender, try to negotiate to have the same loan period as your current mortgage,” says Claire.
Get a home loan health check
Our home loan health check could help you to:
- find ways to fine-tune your loan
- get more certainty or flexibility on interest rate options
- reduce your repayments
- pay off your loan sooner.
Tip 3: Compare the costs of switching your mortgage
There are costs involved when switching your mortgage to another lender, so you’ll need to work out if you’ll save money by doing this.
According to Claire, these are some of the fees and charges you want to consider:
- Break fee: if you’re on a fixed rate loan you may need to pay a “break fee” which can be thousands of dollars
- Borrowing costs: you might be charged upfront fees when you switch to another lender. This includes application and processing fees
- Switching fee: you could be charged for staying with your current lender by switching to a different / new loan product
- Discharge or termination fee: you may be charged a fee when you close or refinance your current loan.
Tip 4: Check what you’ll save by switching your mortgage
Once you have an idea of which mortgage providers you’re considering switching to, including the required fees, it’s worth you crunching the numbers with an online mortgage switching calculator.
“Your mortgage is a long-term debt so even a small difference in interest adds up over time. For example, an interest rate of just 0.5% lower, could save you thousands of dollars,” says Claire.
Sam has a home loan with Commonwealth Bank on a property in Brisbane of $545,000. His loan has a remaining 25 years.
Sam decides to refinance with Macquarie Bank which will see him save 0.58% on interest. As a result, he’ll receive a total saving of $15,840 within 5 years of refinancing.
Below are the refinance costs he would need to pay:
$350 discharge fee
$363 application fee
$416 mortgage transfer and registration
Total cost $1,129
In some cases, switching your mortgage may cost you a lot more than the benefits you’ll gain. Here are two scenarios where this is likely to happen.
Your equity is below 20% of the property’s value
If you’ve paid off less than 20% of the property, you’ll have to pay lenders mortgage insurance when you switch. This can occur even if you already paid it on the first home loan.
Your loan amount is small or you’re selling soon
Depending on your circumstances, if you don’t have much debt left on your mortgage, then the savings from switching might not be worth the hassle.
Likewise, if you’re planning on selling within a few months, the effort and costs involved in switching could also negate any financial gains.
“The savings that you gain from switching mortgages to a lower interest rate may far outweigh the costs; however, that’s not always the case.
“If you currently have a fixed rate loan, or you’ve only paid off a small amount, you may be charged penalties and so, it’s really important to calculate the switching costs before you decide to move,” says Claire.
Important information and disclaimer
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at October 2022 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.