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How to get a good deal on your home loan

OneTwo Team

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Home loan refinancing has reached record levels in Australia – what’s stopping you?

According to the Australian Bureau of Statistics, home loan refinancing broke new records in July 2021 – reaching an all-time high of $17.2 billion.

Lower than ever interest rates and competitive cashback offers are two big reasons behind this trend.

But despite all this buzz around switching, some people have been hesitant to refinance – and could be missing out on huge savings on their loans. In fact, according to Lendi, more than half of Aussies (54%) have not refinanced – ever.

So it’s a good time to ask. What exactly is a good deal? And just as importantly, what’s stopping you from going after one?

It might seem complicated at first, but a little digging into what’s out there will soon show if you’re getting a raw deal (which is likely if your mortgage is a few years old).

Often banks don’t pass on the full rate cuts to existing customers, instead relying on people to do nothing.

But perhaps a quick look at the maths might inspire you to act.

Right now, the difference between a good deal and a not so good deal could be over 2% - which has a massive impact on your repayments. And as interest rates go up, this difference is only set to get more eye-watering.

Case in point: Cynthia and Jake

Cynthia and Jake have been neighbours for three years - since they first bought their apartments at a similar price. Cynthia recently switched to a home loan with a 1.99% interest rate and now pays $1,942 a month.

Jake is still with his original home loan and has an interest rate which has crept up to 3.69%. He pays $2,389 a month. Over a year, Cynthia saves $5,364 compared to Jake – and $150,192 over the life of her loan. (Cynthia and Jake’s situation is just an example for illustrative purposes only).

Switching isn’t as scary as it might seem

Seven steps to get you to some serious savings.

1. Check your current interest rate and the market. Are you getting a raw deal?

2. Ask your lender to drop your rate. If they agree, there’s no need to switch your loan.

3. Find a good deal. Explore other loans that offer a better rate. Make sure they have the features you need – whether that’s being able to redraw, or an offset account.

4. Use our mortgage calculator to do the maths. Compare different offers and triple check it’s worth switching. Remember to include any costs.

5. Apply for a new home loan. Nothing you haven’t done before – put your docs together, apply and wait on approval.

6. Wave goodbye to your old lender. Your new lender will take it from here.

7. Enjoy your savings. Use them to repay your loan faster, go on holiday.

When it’s better to stick with your loan

Sometimes the time just isn’t right. Here’s when that might be.

  • If you plan on selling your property in the next few months or your loan is very small, the cost of switching might not pay off.

  • If your credit history isn’t spotless right now or you’ve recently lost your job. (If your application gets knocked back, it goes on your record - so you might not want to try this too often.) Instead, you can prove you’re a good borrower by making extra repayments – and then try to negotiate a lower rate with your current lender.

  • If you’re in a fixed rate loan. Breaking out of these loans can lead to some brutal costs, especially if your balance is still high. Better to wait it out and start shopping around when there’s only a few months left on your fixed term.

If more than 80% of your home’s value is still owed by you, you may have to pay Lenders Mortgage Insurance - even if you’ve paid it before. Try to build up at least 20% equity in your home first.

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