Switching a home loan could potentially save you a significant amount of money in interest or let you take advantage of features offered by another loan provider. So do your maths and determine if switching benefits are worth the costs.
Let’s understand on following parameters:-
See what loans are available from different credit providers. A loan comparison website may give you an idea of what other lenders offer, or you may use a mortgage lender like a financial advisor to help you choose a loan.
Ask For Facts Sheet
When you find some loans that offer the features you want, ask the lender for a key facts sheet on each loan to compare features. Credit providers must give you a key facts sheet on home loans if you ask for one.
Key facts sheets give you the information you need in a set format, making it easier for you to shop around and compare loans. In addition, they highlight important information, such as the total amount to be paid back over the life of the loan, interest rate, type of interest rate, processing fee, exit fee, penalty charges, etc.
Ask For Better Deal
Tell your current credit provider that you are planning to switch to a cheaper loan offered by another lender. They may suggest an alternative loan at a more affordable rate or offer to reduce the interest rate on your current loan to keep your business. Compare any loan they provide with other loans you are considering.
Remember that a discount below the listed interest rate will often be available, so speak to potential lenders to get the best deal.
Be wary of companies that offer loans that claim to pay off your mortgage faster. You can only increase your repayments or find a loan with low fees and a low-interest rate.
Compare Interest rates, Fees, and Features.
Once you have short-listed potential loan providers, draw up a table to compare each loan’s interest rates, fees, and repayment amounts. Then, check the loan features to ensure you are getting the features you want and not paying for the ones you don’t need.
Work-out Switching Costs
Exit fees, Break fees, and Start-up fees.
Lenders may charge exit fees on loans. Find out if your lender charges exit fees on your loan. For example, you may need to pay a break fee on a fixed-rate loan. You should also check the start-up or processing fees on a new loan.
Lender’s Mortgage Insurance
Lenders’ mortgage insurance (LMI) is a type of insurance that credit providers take out to protect themselves from borrowers not being able to repay the loan. You may have to pay LMI again with a new lender. This can significantly increase the cost of switching loans.
Length of the New Loan
Some lenders only allow you to refinance with a loan of 25 or 30 years rather than the number of years you have left to pay off your current loan. So if you take on the new loan, your repayments will drop, but if you only pay the minimum in repayments, it will take 25 or 30 more years.
If this is the case, consider increasing your repayments for the new loan, so you can still pay it off reasonably. You don’t want to be still paying off your home in your retirement just because you switched your home loan.
Other Ways to Reduce Your Home Loan
There are other ways to reduce your home loan debt apart from switching loans:
- Make additional repayments: this will save you interest and help you repay your loan more quickly.
- Make more frequent repayments: if possible, and the facility is available, pay back the loan amount weekly or fortnightly rather than just making the standard monthly payment.
- Consolidate multiple loans: you will save money by paying only one set of fees, and you may get a better interest rate.
Conclusion: Choose Home Loan Provider Carefully
Switching home loans can save you money, but always check that the benefits, such as interest rate savings, are worth the fees you’ll be charged for leaving one loan and taking up another. A home loan is significant and may run longer than a car or personal loan. Buying a home is essential, and so is selecting a home loan provider. A home loan should be taken from a reputable, reliable lender and follows good business practices. A cheaper home loan may not necessarily be the best home loan.