Shop around for a better home loan

HOME owners unhappy with their mortgage have the option to bail out and refinance to a different loan offering a better deal. But new research shows that despite widespread discontent, one in three borrowers stay put because they reckon all banks are the same. 

Higher interest rates have created a groundswell of discontent among Australian mortgage holders. Research by ING DIRECT shows that fewer than half the nation’s home owners are happy with their mortgage, and around 30% are ready to jump ship.  

With hundreds of loans available from banks, credit unions, building societies and non-bank lenders, it shouldn’t be hard to find a loan with a lower rate or better features.   

The trouble is, around 90% of Australians have their mortgage with one of the big four banks. If you’re prepared to consider the vast array of other home loan lenders, chances are you could get better value elsewhere.  

According to the study, the key reason most people stick with their loan is concerns about exit fees. Sure, these can be costly, especially if you’ve had your current mortgage for less than five years. But many lenders have now scrapped exit fees, so it’s worth contacting your lender to see if they still apply to your loan. Also, be aware that the federal government is planning to outlaw home loan exit fees from 1 July.  

Surprisingly, one in three home owners stay with their loan because they reckon all lenders are the same. Certainly the basic way a mortgage works as a loan secured by your home is pretty much the same across the board. However when it comes to rates and features, home loans can differ widely.    

According to comparison website RateCity (www.ratecity.com.au) not one of the five cheapest home loans available in late January were offered by the four major banks. The cheapest was IMB’s Budget Home Loan (6.82%) followed by Holiday Coast Credit Union’s variable rate mortgage (6.85). By contrast, one of the lowest rates you’ll get from the major banks is 7.30% with the Commonwealth Bank’s Rate Saver loan.        

That’s a rate difference of almost 1%, which highlights just how much mortgages can vary between lenders.  

If you’re not convinced, consider this. Switching a $300,000 home loan from a lender charging 7.3% to one charging 6.8% will cut about $90 off the monthly repayments and save around $33,700 in long term interest charges over the full term of the loan.   

With savings like that up for grabs, it’s worth looking around to see how much you could save by switching loans.   

You will need to weigh up the costs of refinancing against the savings. That means looking at the application fees on the new loan plus any exit fees on your current mortgage, and comparing this to the benefits of a lower rate or better features.   

However the time spent researching the mortgage market and making the switch to a different loan could be a great investment if it puts more money back in your pocket rather than your lender’s.  

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.



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