Should I Refinance my Home Loan?

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By Kylie Cassidy and Brendon Ojala

 

With the banks competing for new customers and offering cash incentives, the temptation to switch banks can be rife. Brendon and Kylie ask if the switch is really worth it.

 

The first thing to note if you’re considering refinancing is that you should consider much more than just interest rates. The actual costs can vary depending on whether you have existing loans that are still fixed. There are also the non-monetary factors like finding a bank that better suits your needs or has a superior service level. These are all things to consider.

 

Turning to your mortgage broker for advice should be your first step as they can help you work out the pros and cons, in the meantime, here are four factors to get you thinking:

 

1. Does the bank suit my needs?

 

Consider the bank’s products and whether they will suit your current needs. Do you want to be able to make lump sum payments without penalty? Do you want a large revolving credit account? Or perhaps an offset product where you can use the funds across savings accounts to offset the interest on your mortgage?

 

2. Don’t get hung up on lower interest rates

 

Lower interest rates aren’t the be-all-and-end all, and often some smart budgeting coupled with the right mortgage structure can give you more than then a 0.2 per cent decrease in interest rates. We will of course, work hard to get a competitive rate from the bank, but it’s in this finer detail where your mortgage broker can add real value.

 

3. Making the switch can be messy

 

If you’re offered a cash incentive to move banks, chances are you’ll need to move your banking across to them. This means changing your APs, direct debits, salary and so on. Some banks do offer a “switching service” to make the process easier, but you may need to keep your existing account open with some cash in it, to cover any repayments or direct debits you may have forgotten about.

 

4. Costs of switching

 

Below are some costs to consider:

 

·         Potential break costs at your current bank (anywhere from zero to tens of thousands!)

·         Lawyers fees (approx. $1000-$1500)

·         Cash contribution claw backs (if your current bank offered you a cash contribution, if you move banks within a certain time frame—between two and four years—they reserve the right to ask for this cash back.

·         Discharge fees ($100-$150)

 

The new bank may offer you some cash to offset the above costs, however, it’s important to consider all of the above. The “best bank” offering the lowest rates changes all the time, so it’s important to consider your needs long term. 

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Kylie Cassidy and Brendon Ojala are Registered Financial Advisers with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.