Refinancing Your Home Loan
Save thousands by easily moving your home loan to a new provider
Article updated weekly - last updated on Monday 8 March 2010
For many of us, refinancing our home loan is the easiest way to save big money. For example, by shaving just 0.25% off a $300,000 a principal and interest mortgage (reducing the rate from 6.75% to 6.50%), with 20 years to pay it off, you can save $10,649 in interest payments.
And with interest rates increasing for the fourth time in 5 months on Tuesday 02 March 2010, with the possibility of further increases, it's important to look at your current home loan to see just how competitive it really is.
This step-by-step guide will help you understand the process and the costs involved in refinancing your home loan. And of course we'll also show you the best current home loan deals in Australia.
Step one: What does it cost to refinance my home loan? Step two: find a new home loan Step three: the mortgage broker Step four: go directly to the provider Current low rate home loans - updated daily |  |
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Are you paying too much interest? |
The first thing to understand is that there are costs involved in refinancing. We have broken these fees into the three categories below: Fees you have to pay, fees you may have to pay and fees you don't have to pay when refinancing:
| Fees you HAVE to pay when refinancing your home loan |
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1) Registration of mortgage fee – This fee is a State Revenue fee as follows: ACT-$96; NSW-$95; NT-$105; QLD-$125; SA-$117; Tas-$86; Vic-$98; WA-$110. |
| Fees you MAY have to pay when refinancing your home loan | |
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1) Exit Fees (charged by your current lender) The lender will also charge a fee for discharging their mortgage and arranging a settlement, so check to see if this is included in the exit fees as it might be charged separately.
2) Loan Application/Establishment Fee & Property Valuation Fee (charged by the new lender)
For further information see: NSW Office of State Revenue |
| Fees you DO NOT have to pay when refinancing your home loan |
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You do NOT have to pay the following fees (these fees are only applicable when buying a NEW property) |
Warning! Increasing interest rates
The Reserve Bank of Australia increased interest rates 4 times in the last 5 months (once in March 2010 and three times in late 2009), by 1.0%. Despite this large increase experts agree that the RBA will continue to increase rates in 2010, with many speculating that rates will increase by 1% or more in the next 24 months. A 1% increase in interest rates will increase interest payments by $250 a month on a $300,000 interest only mortgage so please ensure you are prepared for the extra repayments required.
There are many, many loans in the market, but when you’re searching never lose sight of this one fact – the interest rate is the key to saving you money! Even what seems like a tiny 0.25% can make a massive difference. Here’s an example to prove our point:
| Effect of a 0.25% reduction in interest rate If you took out a $300,000 home loan with an interest rate of 6.75%, over the life of a 30 year loan, you’d pay $400,485 in interest. However, if you reduced the interest payment by just 0.25% to 6.50% you’d pay $382,633 – giving you a saving of $17,852 (or approx 5,900 take away cappuccinos!). |
Be aware of 'yearly' fees
When looking at a home loan rate, the provider will show both the variable rate and the comparison rate. The comparison rate is usually slightly higher as this incorporates fees & charges relating to the loan such as the establishment fee. However be aware as the comparison rate does NOT include fees such as exit costs. Some providers are also introducing 'credit card fees' to the home loan - this is an annual fee you have to pay to have a credit card attached to the loan - the fee is compulsory. However since it is a 'credit card fee' the lender does not have to include it in the comparison rate - sneaky so be aware and ask to see a list of ALL fees and charges!
What is a comparison rate? You can read more about it at: http://www.creditcode.gov.au/content/downloads/factsheet.pdf
Find the best deals online
When it comes to finding the best home loan rates in the market, the web is a great place to research and there are many sites that compare a variety of loans. However make sure you use a combination of sites to give yourself a full comparison as not all websites offer every home loan product.
Make sure you use the Money Saving Master home loan comparison page* - this is powered by Infochoice - Australia's leading online financial comparison website.
You can also use search engines such as Yahoo and Google to find low rate home loans and comparison sites. Simply type in 'compare home loans' to search for other home loan comparison sites:
Whilst the web is a great source of information, there is another way to method to help you find a great deal and give you tips and advice with your application form - the mortgage broker:
A good mortgage broker can be fantastic – they offer expert advice on refinancing, have access to special deals and help you fill out those annoying application forms. However, before you even pick up the phone to speak to a broker, consider the following points:
1) Most brokers offer only a limited range of loans
Sadly, some home loan providers have stopped offering their mortgage products through brokers due to the credit crunch. This means that the broker does not necessarily have access to the best deals. Therefore, your first question to the broker should be “Can you match or beat the variable rate of X%? (see below for current best deals). If they cannot, then simply call another broker and ask the same question. If a broker can’t match the rate you’ve found online then you will need to go direct.
2) Does the mortgage broker charge a fee?
Nothing in life is free and brokers need to make a living – they do this by earning a commission for every home loan they sell to their customers. Hence any broker worth his/her salt should not charge you anything (in some states it is even illegal for a broker to charge an upfront fee).
It’s also worthwhile noting that some brokers will even share some of their commission with you (type in ‘refund home loans’ in Google or Yahoo for a selection). However, don’t get carried away with the prospect of getting a few hundred dollars back upfront if the ‘Cash Back’ broker only has access to a limited number of more expensive loans.
In some cases you can only get the best deals by going directly to the home loan provider. They keep their prices low by doing most of their advertising on the internet and don't use brokers or have high street locations eating up their costs like the major banks.
If you do go direct, it’s worth calling the lender and asking them to assign you with an advisor – they can often assist you in filling out the required paperwork rather than having to do it by yourself.
Don’t be scared off from going to a lesser known lender because you don’t know them – you’re in no danger as they are lending you the money (unfortunately, if they did go out of business, this doesn’t mean that you won’t have to pay back your mortgage! – another larger lender will no doubt snap up the business).
Finally, if you do go directly to a lender, be careful about getting any ‘add-on’ products (e.g. home insurance, life insurance, etc.) through them, as they often charge exorbitant rates.
Ask for more!
When you’ve made your decision on the right home loan for you, whether it be through a broker or directly with a provider, do one more thing – ask the following question:
“I’m interested in taking out your loan but before I make a decision are you able to reduce the rate further?” If they say ‘no’ to this, ask about removing/reducing any upfront fees.
Don’t be afraid to ask! You’ll be surprised how many lenders will at least reduce their sign up fees. For more information on negotiating with suppliers read our haggling guide.
Exit fees
You know by now that lenders are charging higher and higher exit fees. If you’re like the majority of Aussies with home loans, you’ll move providers again in 5 years. So make sure you know the exit costs before you sign that contract!
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| The above home loan rates are verified daily and provided by InfoChoice - Australia's leading online financial comparison website |
Offset account/redraw home loans can be a great way of saving money by using your savings and money in your everyday account to reduce interest payments. Please read our Offset Account & Redraw Home Loans article for further information.
Fido, a Government information site, has some helpful information on getting a mortgage.
Want to comment on the above article? Any stories or experiences (good or bad) about mortgage providers that you'd like to share? Have you got any other money saving tips to reduce your home loan? Please share them on our Forum.
Important disclaimer: The above information is carried out using independent journalistic website and our recommendations are general in nature. MoneySavingMaster.com.au is passionate about helping you find the best deals but we can’t take everybody’s individual circumstances into consideration.
If you visit any of the above sites please ensure that you read and fully understand all the product details and conditions, including any product disclosure statements, before you sign up for any product or service. Consult a licensed financial services provider if you require advice about your specific needs.
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