Switching Home Loans
When was the last time you did a health-check on your mortgage? The market is super competitive and by switching home loan options you could get a better deal.
Switching home loans, also known as refinancing, means you replace your existing mortgage with a new mortgage.
By doing so you may access a lower interest rate, equity in your home or other benefits your current loan doesn’t offer.
Refinancing usually means changing lenders but it can be done with your existing home loan provider.
What are the benefits of changing home loans?
There are a few reasons you might consider switching home loan options;
To get a better interest rate
Switching to a lower rate could save thousands over the lifetime of your home loan and lower your repayments.
For example, on a $500,000 loan at 3.5% interest over 25 years, your monthly repayment is $2503.
By switching to an interest rate of 2.5%, your payment decreases to $2243 per month. A saving of $260 per month.
Swap from a variable to fixed-rate mortgage
Changing to a fixed-rate mortgage will lock in the same monthly repayments which can make managing your monthly budget easier.
Access equity in your property
Equity is the difference between what you owe on your mortgage and the value of your home.
Say you currently have a $300,000 mortgage balance and your home is worth $500,000.
Most lenders will let you borrow up to 80% of the property value. This means you may be able to refinance your loan for up to $400,000.
The difference between the new loan amount and the original loan balance is what you’d receive in cash. In this example, it would be $100,000.
You can use the extra money for things like home renovations or paying off debt.
Combining your outstanding debts (personal loans, credit cards, etc) into one loan can simplify repayments.
You might also save on interest over the long run.
Get extra features
Switching home loans options may give you access to extra features like redraw facilities or flexible payment options.
How to switch your home loan
Below are the basic steps involved in refinancing your home loan
Check the interest rate, fees, and features of your current loan. Also, understand why you want to refinance. Do you want to lower your monthly repayments, access equity to free up cash, or consolidate debts?
The next step is to shop around and compare loan products. Here are a few things to think about;
- Interest rate
Always use the advertised ‘comparison rate’ when comparing.
- Type of home loan
Fixed-rate or variable-rate loan.
- Loan duration
This will affect the size of your monthly repayments and total interest you’ll pay.
Switching home loans for a lower interest rate might sound like a good idea. However, even a lower interest rate over a longer loan term may have you paying more in the long run.
Use our home loan repayments calculator to compare the total interest you’ll pay over different terms.
The costs of both closing your existing loan and establishing a new one. You’ll find a run down of these further along.
- Flexibility and features
For example, redraw facilities, cash back offers, flexible repayment frequency, extra repayments, and loan portability.
Use our easy home loan comparison tool to research trusted Australian lenders for switching home loan options.
Talk to your current lender about refinancing with them. They may be able to offer a lower rate or meet your other requirements to keep your business. Sticking with the same lender may save you some fees too.
Always crunch the numbers to see if the cost of changing lenders will exceed the potential savings you can make.
Found the loan you want? Time to submit all the required documentation.
This will include identification, current loan details, financial information (income, etc) and details of your property.
Your prospective new lender will then do a property valuation on your home. Their assessment of the property’s worth will determine how much they will lend you.
Your new lender will contact your old lender to exit your current home loan. They’ll exchange all required documents and make the title transfer.