It may be worth switching if you can get a mortgage at a lower rate than what you are currently on. However, every situation is different so you need to weigh up the cost of refinancing and whether it is the best thing for you.
Refinancing enables homeowners to rewrite their existing loan to repay it with a more suitable loan, usually one that has a better rate and more attractive features. When refinancing, some or all of the funds from the new loan are used to pay out the existing loan. Usually the loan is with a new lender, but it can be from your existing lender.
Many people choose to refinance when rates are on the rise and they want to get a more competitive rate to lower their repayments. Some may want to use equity in their house to borrow some additional funds for renovations, or perhaps an investment property.
Beware of exit fees
While the government abolished exit fees on July 1, 2011 – this only applies to loans which were established after the date. Chasing the lowest rate doesn’t always equal the best deal. Ensure you include any exit fees which may apply to your loan when considering switching loans, as it may actually be more costly exercise than first though.
How high is your LVR (loan-to-value ratio)? While banks have relaxed some of their lending criteria, so a maximum LVR of 95 per cent or lower may be required. An LVR over 80 per cent may incur more Lender’s Mortgage Insurance (LMI).
How much will you save?
That depends on what your loan is, and of course what the difference is between the new rate and the old rate. It’s worth doing some calculations and the Aussie 1-Minute Mortgage Calculator is a good place to start.
TIPS FOR SWITCHING
- Shop around (or get a mortgage broker to do the legwork)
- Work out the costs of switching
- Compare interest rates, fees and features
- Ask yourself if the benefits of switching are worth the costs
- Get a broker to do all of the above!