Giving your mortgage the once-over could save you thousands of dollars.
Switching to a cheaper lender or even renegotiating with your own may sound like hard work but just a 25 basis point saving – or one-quarter of a per cent – could shave $18,000 off a typical mortgage by the time it is paid off.
Even a 10 basis point reduction – which can often be achieved by calling your current lender and asking for a better deal – could save you a handy $7000 off an average $300,000 loan over its lifespan.
Michelle Hutchison, spokeswoman for loan comparison website Rate City, says advertised variable rates vary by nearly 2 per cent between lenders.
“We’re seeing a bigger disparity between what lenders are offering because they’re passing on different amounts of rate cuts … than the Reserve Bank,” she says.
“You really need to keep track of what your lender is offering you, how much you’re paying in interest and compare it to the rest of the market to make sure you’re getting a fair deal. It’s a good idea to do this once a year at least.”
Although some lenders offer attractive introductory rates, Hutchison says borrowers are usually better off going for the lowest ongoing rate that they can find (in a loan that has the features they need) as the sweeter-looking deals will revert to a higher interest once the honeymoon period is over.
When shopping for loans, it is important to look at comparison rates, and not just the headline rates.
The comparison rate bundles interest, fees and charges together and expresses them as a single percentage to allow borrowers to better compare loans.
If you find a good deal in the market, it’s worth asking your existing lender if they can improve their offering before deciding to switch.
“Because of this slower lending environment … retaining customers is really important at the moment,” says Hutchison.
Some simple online research can put borrowers in the bargaining seat.
It’s not all good news though – depending on your situation, refinancing may not save you money, even if you can find a better ongoing rate with your desired loan features, such as redraw and offset.
“If you have less than 20 per cent equity, you’re likely to have to pay for lenders mortgage insurance on your new loan because … unfortunately it’s not portable,” says Hutchison.
“You may have to wait until you build up more equity. And you also need to aware of upfront fees and potentially some small fees to close your existing loan. You’re looking at around, on average, about $1000 for fees to switch to a new loan. “
Hutchison says about one-third of all home loans financed each month over the past year were refinanced loans.
“This excludes loans refinanced within the same institution so the number of borrowers refinancing is likely even greater,” she says.
Banking reforms have played a significant part in helping to make it easier for borrowers to switch between lenders by banning early exit fees on variable home loans taken out after July 1 2011, Hutchison says.