Fairchild Group Asks: Is Now The Time To Switch Mortgage Providers?
From the desk of the Fairchild Group Wealth Management:
Customer satisfaction levels for all of the four big banks in Australia have dropped significantly. This has gone hand in hand with further drops in interest rates. As a result, many people are questioning whether they should stay with their current lenders. With some 156 different loans in the country now having rates of 5.2% or lower, it seems that switching would be a good financial move.
A new survey by Finder has revealed that 40% of Australian borrowers have stuck with the same lender for at least ten years. For some, this is due to loyalty to their lender, others are too lazy to switch, and others still simply don’t know what possibilities are out there. This is unfortunate, since switching lenders could save you thousands of dollars. However, ABS stats has revealed that, at present, just 34% of all home loans have been refinanced. This means that, potentially, 66% of people are paying more than they need to.
Fairchild Group Advocates Searching for Savings When Switching Providers
Some people, however, are looking into making a switch. There are now various price comparison sites available that easily highlight the different deals. Numerous examples exist of people with mortgages in excess of $300,000 reducing their overall rate from around 5.7% to as little as 4.6%. This equates to a significant savings on monthly repayments, and also on the payments towards the mortgage overall.
Refinancing a mortgage means completing a lot of paperwork, and this is one of the things that people consider to be a barrier towards switching. However, by working together with a good mortgage broker, dealing with the process of switching between lenders is quite easy to do. In the example above, savings of $229,43 per month are possible, which equates to $82,592.87 for the full lifetime of the mortgage. That is a serious amount of money!
Costs Involved in Switching
The reality is that refinancing a mortgage can help to save thousands of dollars. However, there are also some costs involved. Hence, you need to make sure that you don’t actually end up paying more because of the various fees you will be charged. It is reasonably easy to calculate what the potential savings are likely to be, as there are numerous calculators available online for free. However, cost calculations are a lot more complex, not in the least because different lenders offer different deals, each with different costs. Furthermore, your personal financial situation also comes into play. There are a number of costs, however, that you are likely to have to make if you do switch, as listed below:
- The discharge fee. In the past, this was known as the “exit fee” and it could cost thousands, as it was a percentage of the outstanding balance. The government has intervened, however, and made this practice illegal. Now, the discharge fee is usually between $150 and $500. Additionally, you may have to pay some government charges as well.
2. The break fees. These fees are present if you currently have a fixed rate mortgage. In that case, the break fees are basically a penalty that you incur because you did not complete the term of your fixed rate mortgage. Depending on the term of your loan and what the current interest rate is, these fees could run in the thousands, unfortunately.
3. The new application fee, which is usually anything from $400 or more. This is what you have to pay in order to get a new mortgage. Furthermore, each state has its own mortgage registration fee, which you will have to pay for your new loan construction.
4. LMI (lenders mortgage insurance), which may be charged depending on the results of your new valuation. If a lower rate is used to valuate your property, there could be an LVR (loan to value ratio) of more than 80%.
5. Stamp duty, which sometimes has to be paid if you decide to refinance your loan. There are numerous stamp duty calculators available online for free, however. This means that you can know exactly if you have to pay stamp duty and, if so, how much.
Once you know what all these costs are, and you therefore know how much you will be out of pocket if you choose to refinance, it is time to start looking for new home deals. What follows is a simple mathematical calculation whereby you work out whether you will save more by spending on fees now, or whether those savings do not offset the fees you would incur.
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The Fairchild Group Points to Other Important Points of Consideration
Before you decide to refinance, you should:
1. Try to get a better deal from your lender by negotiating with them. The home loan market is highly competitive and banks are bending over backwards to retain existing customers and attract new ones. Hence, if you tell your lender that you are considering switching, then they may offer you an incentive to stay. Make sure, therefore, that you have information on deals to hand before you make this phone call.
2. Get fact sheets on any loan that you may consider first. This will enable you to look at the benefits of switching, including the rates and the features, in closer detail. By having a fact sheet at hand, you will be better able to see just what the costs actually are, and whether or not that is a good choice for you.
3. Shop around as much as possible. At the Fairchild Group Wealth Management we always encourage you to not accept the first deal without seeing what else is out there. Speak to brokers as well, who can help you find the lowest possible rates, while still keeping the features you are looking for in mind. Brokers can also be found online and they often have a number of deals already negotiated, which makes switching much easier.
Whether you are a first time buyer, moving up the property ladder, refinancing your mortgage, or investing, you should always use the services of a mortgage broker. They have access to all of the country’s different loans and lenders, helping you to get the best deal. Additionally, they can help make the switch as quickly and as easily as possible.