To fix or move – that is the question
2017 saw huge upheaval – lenders tightened requirements, official and actual interest rates seemed miles apart and interest-only borrowers were really put under the pump. But while many panicked and are seeking to fix their interest rate, there may be a better option.
If you fix now you’re essentially committed to that for the next few years – and what if you could actually have a better deal by moving to a different lender? A few things to consider about moving lenders:
There’s no exit fees
Many of us forget that, since 2011, it’s been illegal in Australia to be charged exit fees. That’s on mortgages taken out since 2011 but even if you don’t fall into that category – any exit fees must commensurate the lender’s true loss and be fair – as per ASIC. You can no longer be held to ransom by penalty threats as high as 5% of your loan.
A point to remember though – if you sign up for a fixed rate period and you then leave for a better deal the ‘commensurate’ penalty claimed by the fixed rate lender could be quite significant.
Low entry fees
One of the interesting outcomes of the new mortgage mobility era is the huge amount of competition for your business. And, it’s not just interest rates that are competitive, but up-front, establishment fees too. Ten years ago, $1000 loan establishment fees were not unheard of but in today’s market you’ll usually pay very little. Oh, and valuation fees have fallen as well.
Make sure you check out the comparison rate – this is the rate that sits next to the ‘headline’ rate – this will show you the true cost of the loan, including account fees and the lot.
If you’re still not sure that moving lenders is worth the hassle – consider this – the potential savings could be huge. Let’s look at an actual example:
Current lender mortgage of $350k – interest rate of 5.5%
New lender mortgage of $350k – interest rate of 4%
This equates to a drop in the interest bill of over $90k over the life of the loan (almost $295k down to just over $204k). And, this also means an extra $301 in your wallet every month.
But here’s the thing – if you’re already used to spending that extra $301 every month – and you’ve adjusted your lifestyle accordingly – you could save even more – if you keep your repayments the same (even after moving lenders) you will add almost $50k to your interest saving. It adds up, right?
Before you rush off and move lenders, you do need to have a think about mortgage insurance implications. This is the strange insurance – where you pay the premiums but the lender receives the protection should you default on the loan and they don’t recoup the amount you owe from the sale of the property.
Note: This is different from mortgage protection insurance which can cover your repayments if you are suddenly not able to meet them.
Now, LMI (lenders mortgage insurance) can not be moved to your new lender (you might be able to get a partial refund if you move within 2 years of taking out the loan) so you may need to pay it again to some extent.
You will only need to pay LMI if you borrow 80% or more of the property’s value – most often first house buyers with less than the 20% deposit (plus costs).
If you borrow less than 80% (of loan-to-value ratio or LVR) there is typically no lenders’ mortgage insurance and often access to the cheapest interest rates.
It’s definitely worth having a chat with the Oak Financial team – recent house price growth may mean that, when refinancing, you are indeed now below the 80% LVR.
When to consider moving lenders
If you have 20% or more equity in your property then anytime may be a good time to consider a move, especially if your overall interest savings could be significant.
Before you fix or move lenders, have a talk with one of our team to get some sound advice on your options. Contact us today to learn more.