Updated: Aug 4, 2021
Refinancing your home loan to take advantage of a lower interest rate might save you money. When switching home loans, it is important the benefits outweigh the costs. Here are some other things to consider before switching home loans:
Ask your current lender for a better deal
Tell your current lender you are planning to switch to a cheaper loan offered by a different lender. To keep your business, your lender may reduce the interest rate on your current loan.
If you have at least 20% equity in your home, you'll have more to bargain with and having a good credit score and loan repayment history will also help with negotiations.
Any deal your current lender is prepared to offer should be compared to the other loans you are considering.
Negotiate the length of the new loan
Some lenders will only refinance with a new 25- or 30-year loan term. You could end up with a longer loan term than the years left to pay off your current mortgage.
The longer you have a loan, the more you will pay in interest. If you do decide to switch, negotiate a loan with a similar length to your current one.
Weigh up the cost of lender's mortgage insurance
If you have less than 20% equity in your home, you might have to pay lenders mortgage insurance (LMI). This can increase the cost of switching and outweigh the savings you will get from a lower interest rate. If you decide to switch, ask for a refund of some of the LMI from your current loan.
Compare the costs of switching your mortgage
Get at least two different quotes on home loans for your situation.
Compare the fees and charges
Your broker can help you find out what is available by comparing some or all of the following things.
Your mortgage broker will calculate if you will save money by changing home loans and show how long it will take to recover the cost of switching.
Speak to your mortgage broker today about switching home loans.
The Newstead Group Team