Are you looking for a better deal on your home loan? You could potentially save thousands of dollars with a better interest rate or access mortgage features more suited to your current lifestyle. Please read on to learn about switching home loans and how you can switch your home loan from one bank to another and why you might do it.
Can you transfer mortgage to another bank?
Generally, transferring mortgage to another bank is possible part-way through your loan term. If you haven’t looked at any other options recently, you may find a different lender or loan product could suit you better. Some home owners feel like it’s too big of a job or they don’t have time. An experienced mortgage broker can do the hard work for you in comparing what’s available and what would suit you.
With the help of a mortgage broker, you could find:
- A lower interest rate
- Lower, or no fees
- More flexible repayment options
- Better features
How much could I save by switching home loans?
You will need to weigh up the costs of changing mortgage providers against the savings to see if switching is right for you. With the historically low interest rates we are seeing, fees such as discharge and application fees may be outweighed by the potential savings due to a better interest rate.
Here’s an example:
An owner-occupier with 80% LVR on a $400,000 home loan and an interest rate of 3.42% (a typical home loan interest rate in November 2020) undertakes a refinancing home loan with 1.99% (with a comparison rate 2.47%). Over the life of a 30-year loan, they could wipe about $300 in savings each month off their mortgage repayments (assuming rates remained the same for the entire duration of the loan).
Before you switch home loan – important tips
A better interest rate is certainly a great reason to review your home loan, however, there are a few things you can do before switching home loans as a “health check” for your mortgage.
Ask your current lender for a better deal
Tell your current lender you would like to review your home loan, and mention that you are happy to switch banks to get a better deal. To keep your business, they may offer to reduce your interest rate on your current loan. Your mortgage broker may be able to liaise with your lender on your behalf.
Weigh up the cost of lender’s mortgage insurance
If you have less than 20% equity in your home, you may have to pay lender’s mortgage insurance (LMI), which can increase the cost of switching home loans and outweigh the savings you’ll get from a lower interest rate.
An experienced mortgage broker in refinancing will be able to assess your current home loan and let you know if LMI will apply to the new loan.
How to switch mortgage to another bank
Once you are ready to switch loans, we have some top tips to help you cover off the important steps.
Compare interest rates
Finding the best interest rate available and going with that lender is not always the best deal. You need to look at comparison rates as well as loan features and any applicable fees to truly “compare interest rates”. If you have at least 20% equity in your home, you may be in a position to get even more competitive rates.
Check with your existing bank
As we mentioned above, call your existing lender – or ask us to – and see what discounts they can offer you. You may get a better deal without having to switch completely.
Check on fees and extra costs
Adding up your break fees on your current mortgage with any start-up and any ongoing fees with new lender options will help you know exactly what costs you’ll have as part of switching home loans.
Calculate your break-even point
A helpful calculation is figuring out your break-even point before changing mortgage providers. If you add up the costs of refinancing and divide that by your monthly savings you would make on your repayments, you will find how long it would take to “break even”. For example, if it costs you $1000 to switch, but you are only expecting to save $50/month in repayments, it would take you 20 months to break even.
Check the length of your new loan
Some lenders will only allow you to refinance your home loan for a loan term of the typical 25-30 years. If you have 14 years left on your current loan, but refinance for a 25 year loan term, you could end up paying more interest over the length of your loan. This is a factor to consider and be aware of when refinancing home loans.
Talk to a mortgage broker
An experienced mortgage broker can assist you with some or all of these steps. If you are looking for a better deal, you can talk to your current lender and research online for what is available and see us when you are ready to do the switch. Or you can contact us and say I have no idea what is out there, but I want a better deal! There is a lot of competition between lenders currently and we can look at your current home loan and see how it stacks up against offers (including any cashbacks available which could help with paying some of the costs) that would suit you better.
Contact us today and we can help you weigh up switching your home loan and help you every step of the way.