Home loans – to switch or not to switch?

Ben AshleyThe West Australian
David Smith.
Camera IconDavid Smith. Credit: Oneill Photographic/Supplied.

Despite the potential benefits, recent data from Aussie has revealed half of Western Australian mortgage holders had yet to consider changing their loan or refinancing.

Not only could switching your home loan save money via a lower interest rate, it could also provide access to additional features, including redraw facilities or flexible payments, according to Aussie Chief Customer Officer David Smith.

“In other circumstances, refinancing could mean mortgage holders are able to use the equity in their property to borrow money to renovate or for a big purchase,” he said.

“Another benefit of switching could be to consolidate debts such as personal loans, car loans or credit cards, so it’s easier to manage.”

Recent events considered, it comes as no surprise that many households are tightening their bootstraps and acting more fiscally conservative.

“In 2020, Aussie conducted research and found three-quarters (76 per cent) of Australian mortgage holders would choose to save or reinvest – not spend – the savings they make as a result of refinancing their mortgages,” he said.

“The research showed only 17 per cent of mortgage holders would spend the money they save from refinancing, while 25 per cent of refinancers would spend it on their home.

“About 19 per cent of refinancers who would spend the savings, would do repairs and maintenance of their homes, while 13 per cent would use the money to renovate.”

Mr Smith said mortgage rates had reached historically low levels and now could be an ideal time to swap a home loan for a new one.

“A borrower’s mortgage repayments, for example, could be reduced by $2530 per annum or $210 per month where they refinance from 3.19 per cent to 2.19 per cent on a $400,000 loan*,” he said.

“Different lenders have different loans and different borrowing requirements that dictate what rate you’ll be offered.

“So, by switching, you could get a better deal with a new lender.”

Mr Smith said another benefit of switching was that each lender charged their own fees, as mortgage fees and additional costs weren’t universal.

“While your current lender might have a slightly lower rate, over the life of your loan you might be paying more in fees or charges,” he said.

The study, conducted by Lonergan Research, also suggested one in every two mortgage holders in WA believed a broker would help them find a better rate.

The value of using a mortgage broker is they offer choice and experience, as well as having a legal duty to make recommendations that are in your best interests, according to Mr Smith.

“If you are thinking about switching home loans, they can outline what’s involved, guide you through the steps in detail, they know what’s available on the market, and can assess what you’re eligible for and present you with suitable options,” he said.

“In short, they can help take the complexity and confusion out of refinancing.

“So, if you’re a mortgage holder during this time, it doesn’t hurt to chat to a broker and explore your options if you haven’t already.”

*Results compare 30-year terms, principal and interest, owner-occupied facilities and assume the rates quoted remain unchanged for the term of your loan. If the interest rate changes over time, you need to be aware that the interest saved and period to pay off your home loan may change. Assumptions: $400,000 loan amount owing, initial interest rate of 3.19 per cent repayment frequency monthly. The rate reduction, loan size and loan terms are used as an example purpose only and does not represent any product which may be available for you. The saving is indicative only and may not include all fees and charges.

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