HOW TO MAKE A SMART HOME LOAN SWITCH
Making a home loan switch can help you pay off your mortgage sooner—provided you’re refinancing for the right reasons and fully understand what’s involved. In this guide, we’ll explain everything you need to know about making a smart home loan switch and how to decide when the time is right.
Know the Costs of Switching Home Loans
Switching your home loan to save even 0.5% per annum on a $250,000 principal-and-interest mortgage can save you about $23,000 over 25 years. That’s a significant saving, but be aware there are usually upfront costs when refinancing, especially if moving to a new lender.
Before you make a home loan switch, understand the exit costs from your current loan. Variable loans may charge exit fees, and fixed loans often have break costs if you repay early. You’ll also need to consider setup fees and ongoing account charges for your new loan.
Only after factoring in all these costs can you determine if switching will really benefit you financially. That’s where we come in to help you make the right decision.
Compare Products and Services
A lower interest rate is a great reason to switch your home loan, but it shouldn’t be the only factor you consider. Make sure your new loan is flexible enough to meet your needs and help you get ahead faster. Here are some important features to keep in mind:
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Can you make fortnightly repayments? Paying every two weeks instead of monthly can help you pay off your loan sooner.
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Can you make lump sum payments? Extra repayments above your regular schedule will reduce the amount you owe and shorten your loan term.
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Does the loan offer a redraw facility? It’s helpful to put extra money into your mortgage to pay it down quicker. But if you might need access to that money later, make sure your loan lets you withdraw those funds easily.
To fix or not to fix? Interest rates are still low following historic cuts by the Reserve Bank of Australia. However, when switching loans, ensure you have enough flexibility if rates start to rise. Future-proofing your loan is essential.
Think carefully about which loan features matter to you and which you could do without. Why pay for bells and whistles you won’t use? Technology, service, and availability rank differently for everyone, so identify what’s important, and we’ll help you find the right lender and product to match your needs.
Working with Us to Sharpen the Pencil
One of the benefits of having us on your side is our ability to negotiate with lenders to get you the best possible rate and lowest ongoing fees. We know the market and can help you save money on your loan.
Switch to Save
Many borrowers refinance to consolidate debts by rolling credit card balances, personal loans, or car payments into their mortgage, which usually has a lower interest rate. This often reduces your minimum monthly payments, helping your cash flow.
However, refinancing this way doesn’t always mean you’re saving on your home loan. Use the lower rate to pay off your total debt faster instead of simply extending your mortgage term. Also, once balances are transferred to your mortgage, cancel the credit cards to avoid accumulating more debt.
Direct Your Debits
When you switch loans, remember to update any direct debits and payments. It’s easy to lose track of who you’re paying and when, so review your last three months of statements for your old loan. Notify billers of your new account details promptly to protect your credit rating. Also, give your employer your new account information if your wages are paid directly into your mortgage account.
Check Your Borrowing Power
A common mistake when refinancing is overlooking changes in your financial situation. Since taking out your original loan, has anything changed? If your circumstances have worsened, your borrowing power may have decreased, limiting your options.
Consider if you have:
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Started a family and lost a second income
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Changed jobs and earn less
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Started a business with irregular income
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Taken on more debt (credit cards, car loans)
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Had late payments affecting your credit score
These factors can impact your borrowing capacity and reduce your negotiating power.
Before shopping around, assess your income, expenses, debts, and credit score to understand your true financial position.
Talk to Your Broker
Take the stress out of finding a new loan by letting us handle it for you at no extra cost. We have access to a wide range of lenders and products, allowing us to cast a wider net than you could on your own.
We can often find competitive home loans from lenders who don’t advertise widely and help self-employed borrowers or those with complex financial situations. That’s why over 52% of Australian borrowers choose to work with mortgage brokers like us.
