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Have you continued to compare the deal you are getting on your home loan with those on offer from other credit providers?
For many of us, buying a property is the biggest purchase we’ll ever make.
So shopping around for the best deal on finance, or switching an existing loan for one that offers more favourable terms, could potentially deliver serious savings in the long run.
The three rate cuts by the Reserve Bank in 2019 to a low of 0.75% have created better deals for many borrowers on home loans.1
Banks may not have passed on the interest rate cuts in full, but an analysis by the Reserve Bank of Australia2 found households obtaining new loans, refinancing existing loans, or negotiating a better deal with their existing lender, tended to receive lower rates than existing borrowers who did not alter their original loan arrangements.
If you’re in the market for a new home loan or comparing your current arrangements, you’re far from alone.
Housing finance commitments nationwide totalled $29 billion in November 20183. Loans to owner-occupiers made up $19.7 billion of the sum and loans to investors $9.5 billion.
Since July 2019, the value of new lending commitments to households has risen further, driven by home loans to owner-occupiers, according to the Australian Bureau of Statistics (ABS)4. It found the number of owner-occupier first home buyer loans in September 2019 was up 6.8% compared to a year earlier.
The RBA’s analysis2 showed most households were paying lower mortgage rates in November 2019 than borrowers were paying two years ago.
So, it may be worth comparing whether your current home loan, or the one you’re considering, stacks up against the opposition.
To ensure you’re comparing apples with apples, obtain the key facts sheet credit providers are legally obliged to supply for most home loan products (excluding interest only loans and lines of credit) they offer.
A tool intended to make shopping around for a home loan more straightforward, a key facts sheet should list:
While the carrot of a lower interest rate may make switching credit providers look like a no-brainer, taking your custom to a competitor may see you incur fees and charges.
Find out whether you will need to cover any of the following before you switch:
Does the amount you’re seeking to refinance exceed 80% of the value of your property? A new lender may require you to obtain a current valuation and if it comes back lower than anticipated, you may be asked to pay Lenders Mortgage Insurance (LMI). The cost varies depending on the amount of equity you hold, with LMI often being charged for equity amounts under 80%.
Mortgage discharge or settlement fees may be charged when you pay your loan out in full. If you’re on a fixed rate deal, you may incur a break fee, which reflects a cost incurred due to the difference between the interest rate on the date you took out the loan and the current rate.
Your new lender may have its own schedule of charges, which may include an application or establishment fee, mortgage registration fee and ongoing monthly or annual charges.
For further assistance you may try the Australian Securities and Investment Commission Moneysmart mortgage switching calculator to help you crunch and compare numbers.
Find out more about refinancing
Before switching home loans it’s important to do your sums carefully and weigh up the costs of refinancing against the potential savings you might make due to a lower-cost loan. Find out more about refinancing through QSuper FinFit.
1. Shapiro, J, 8 November 2019, Borrowers are getting a better deal on home loans, Australian Financial Review at www.afr.com
2. Reserve Bank of Australia, November 2019 Statement on Monetary Policy, The Distribution of Variable Housing Interest Rates, accessed 30 November 2019 at https://www.rba.gov.au/publications/smp/2019/nov/box-d-the-distribution-of-variable-housing-interest-rates.html
3. Australian Bureau of Statistics, January 2019, Housing Finance Australian, November 2018, accessed 30 November at https://www.abs.gov.au/ausstats/abs@.nsf/mf/5609.0
4. Media Release, 8 November 2019, New lending to households rises 1.1%, Australian Bureau of Statistics, at www.abs.gov.au
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