Australian homeowners are trapped in ‘mortgage prison’

THOUSANDS of Australian homeowners are trapped in “mortgage prison” because of a government rule change. And there is no obvious easy way out unfortunately.

THOUSANDS of Australians are stuck in a “mortgage prison” with newly imposed lending criteria leaving them unable to refinance their loans to get a better rate.

Changes in bank rules around living expenses calculations have effectively wiped huge amounts off the maximum a bank will allow them to lend you.

Many people are now finding they originally borrowed more than a bank would lend them under current conditions, meaning they haven’t got the option of shopping around to get a better interest rate — no bank will approve to them the amount they need.

Lending criteria has been tightened in the past year. The ongoing Financial Services Royal Commission is likely to tighten the criteria even further — meaning people will be able to borrow even less than they once did.

With homeowners unable to shop around, they can be stuck paying a high interest rate, which will leave them potentially paying tens of thousands, even hundreds of thousands more over the life of their loan.

Recently the Bank of Queensland and Auswide Bank announced they will raise variable mortgage rates as their borrowing costs grow. This follows a warning last month from Credit Suisse that out-of-cycle rate rises were on the table.

Precise numbers of Australia’s mortgage prisoners are hard to determine, but Mozo investment and lending expert Steve Jovcevski told news.com.au that he expected most of them are those who have borrowed and bought property in the last five years.

He said the changes in how mortgage eligibility are calculated have made a huge difference for many recent borrowers, particularly as banks start to raise interest rates.

Before lending criteria was changed, a flat rate for living expenses was usually applied, resulting in many hopeful homebuyers borrowing much more than they now could.

Mr Jovcevski gave an example of a couple earning $120,000 between them, who bought a home in 2013, borrowing a total of $800,000 at 5% per annum, and who would be paying $4295 a month on their loan, leaving $3680 for monthly expenses.

Even with a pay raise between them bringing their income up to $129,000 the couple now faces a change in rules around living expenses that raises the bar for any borrower.

Homeowners who have bought in the past few years are most vulnerable, especially if they borrowed 90 per cent of the value of their loan.

Previously banks estimated these expenses, with a buffer of 1.5 per cent to safeguard against rate rises. Now they are looking closer at people’s monthly expenditure, and have increased the buffer to 2 per cent.

Under this new criteria, the couple would only be able to borrow $680,000, even though their income hasn’t changed at all.

And because their mortgage is still more than $680,000, they won’t be able to find another bank to make up the difference — meaning they’re stuck with their original loan paying a high interest rate.

The difference between a 5 per cent home loan and a 3.8 per cent home loan amounts to $149,272 over the life of the loan.

“When a customer is essentially tied to a provider, they are at the mercy of whatever rate rise or conditions the bank chooses to impose. Given the current situation, banks have the power to hold some of their customers prisoners,” Mr Jovcevski said.

“The sad reality is borrowers who need competitive mortgage rates to stay financially afloat are most likely to be mortgage prisoners.”

First Home Buyers Australia director Taj Singh said he was very much aware of the crackdown on borrowing limits and living expenses for borrowers.

The mortgage broker said this was putting many borrowers in a position where they can no longer refinance to get a better interest rate.

He said given many loans were refinanced every four to six years, this issue would continue to be felt for recent first home buyers.

But Grattan Institute fellow Brendan Coates told news.com.au that the impact of any tighter lending conditions would be largely confined to a small section of borrowers as rising house prices had given borrowing room to homeowners who had been in the market for several years.

He predicted the impact would largely be felt in those who’d borrowed more than 90 per cent of the value of their house, a number which had fallen in recent years from 14 per cent in 2014 to 7 per cent in 2018.

But he did say that if house prices in Sydney and Melbourne continue their fall then the pain could spread to more borrowers.

RELATED LINKS

www.newcures.info

www.scamsfakes.com

www.crimefiles.net

www.sunblestproducts.com

www.policesearch.net

www.money-au.com

Henry Sapiecha

Tags: , , ,

Home loan rates review – Spring 2017 Compare the rates of 66 different lenders from MOZO

Posted by Henry | BANKS,BORROWING LENDING,HOME LOANS,INTEREST RATES,MORTGAGES,RATE % COMPARISONS,REFINANCE | Monday 6 November 2017 11:56 am

*HOW DOES YOUR LOAN RATE COMPARE? ARE YOU BEING RIPPED OFF?

*DOES YOUR LENDER CONFORM TO THE CREDIT ACT? BE WARNED…..

*DO YOU KNOW THE DIFFERENCE BETWEEN A VULTURE & A LENDER?

*WHY DO SOME LENDERS CHARGE DOUBLE THESE RATES & HAVE ATTITUDE?

Take this information to your lender & ask why you are not getting a good deal.

Key Points

  • Spring home loan season kicks off with fierce rates competition
  • A record 66 lenders are now offering variable rates below 4.00%
  • Average Big 4 bank variable rate now 1.20% higher than lowest on market

Fierce lender competition for prime home loan customers is delivering a rate cut bonanza for owner-occupier borrowers this spring.

23 lenders have already cut variable rates to coincide with the spring property season, and Mozo’s data reveals that a record 66 lenders are now offering variable home loan rates below 4.00%.

Aussie, ING, CommBank and Westpac are among lenders to cut variable rates in recent weeks, with more lenders expected to follow as peak property season heats up.

According to Mozo Director Kirsty Lamont, the level of competition on the home loan rates front is higher than usual this spring.

“Spring is traditionally peak season for home loan offers, and this season we’re seeing intense competition amongst lenders driving owner-occupier variable rates to new record lows”, said Ms Lamont.

Home Loan Rates – October 2017

         www.loans.com.au

          Essentials Variable 80 Homebuyer Special

  • Owner Occupier, Principal & Interest

    interest rate 3.54% p.a. variable

    comparison rate* 3.56% p.a.

    Discounted Variable Home Loan (Premium Plus Package)

    Owner Occupier, Principal & Interest

    interest rate 3.64% p.a. variable

    comparison rate* 4.03% p.a.

    Advance Variable Home Loan

    Owner Occupier, Principal & Interest

    interest rate 3.65% p.a. variable

    comparison rate* 3.66% p.a.

    Discounted Home Value Loan

    Owner Occupier, Principal & Interest

    interest rate 3.65% p.a. variable

    comparison rate* 3.66% p.a.

    Basic Home Loan Special

    LVR<80%, Owner Occupier

    interest rate 3.74% p.a. variable

    comparison rate* 3.75% p.a.

    UHomeLoan – Value Offer

    Owner Occupier, Principal & Interest

    interest rate  3.74% p.a. variable

    comparison rate* 3.74% p.a.

    Low Rate Home Loan with Offset

    LVR<80%, Owner Occupier, Principal & Interest

    interest rate 3.69% p.a. variable

    comparison rate* 3.72% p.a.

    Kickstarter Home Loan

    Owner Occupier, Principal & Interest

    interest rate 3.72% p.a. variable

    comparison rate* 3.75% p.a.

    Base Variable Rate Home Loan

    Owner Occupier, Principal & Interest

    interest rate 4.17% p.a. variable

    comparison rate4.21% p.a.

    Equaliser Home Loan

    Owner Occupier

    interest rate 3.72% p.a.variable for 36 months and then 4.32% p.a. variable

    comparison rate*4.19% p.a.

*The Comparison Rate combines the lender’s interest rate, fees and charges into a single rate to show the true cost of a home loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years, and applies only to this example. Different amounts and terms will result in different comparison rates. Full comparison rate schedules are available from lenders. Costs such as redraw fees or early repayment fees, and savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

Look beyond the big banks for the best ratesBorrowers who choose smaller lenders over the big banks can access huge rate savings right now. The average big 4 bank variable rate for a $300,000 owner-occupier loan is 4.64%, a whopping 1.20% higher than the lowest available rate of 3.44%.

“Owner-occupiers looking to buy a home or refinance their current home can secure an incredibly competitive home loan deal this spring if they’re prepared to shop around and consider loans from smaller lenders”, said Ms Lamont.

Rates not so rosy for investors

On the other side of the coin, housing investors are still feeling the pain of APRA’s risky lending regulations.  Australia’s new two-tier home loan interest rate market sees investors continue to pay more for debt and face stricter lending criteria.

Investors are typically paying an interest rate premium of around 27 basis points compared to owner occupier borrowers, according to Mozo’s data.

How to secure the best home loan this Spring:

1. Jump online to compare the best home loan rates on the market

2. Be prepared to look beyond the big banks and go with a smaller lender

3. Go for principal  & interest repayments as interest only loan rates are higher

4. Check for upfront fees, ongoing fees and any exit fees on your current loan if you’re refinancing

5. Consider loan features that can help reduce your interest and pay off your loan faster, like free extra repayments and an offset account

*** Interest rates and home loan data in this article are correct as of time of writing. Average rates based on $300,000 owner-occupier loan with 80% LVR.

Henry Sapiecha

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , ,

Customers use credit rate cut to get ahead on mortgages

Posted by Henry | BANKS,HOME LOANS,INTEREST RATES,RATE % COMPARISONS,RBA,VIDEO AUDIO MOVIES | Monday 29 August 2016 9:37 am

After the Reserve Bank cut official interest rates to a new record low this month, figures from two big lenders demonstrate customers have a growing safety buffer against a financial shock, because they are paying more than the minimum repayment.

1472412921782

RBA cuts interest rates

The Reserve Bank drops interest rates to a record low of 1.5 per cent.

Separate analysis shows a typical mortgage borrower would have paid off an extra $18,250 on their home loan if they had left their mortgage payments unchanged since the RBA began cutting interest rates in late 2011.

As interest rates have plumbed record lows in recent years, home loan customers have on average taken the opportunity to repay their bank faster, which slows growth for banks.

Interest rate cuts have given many households a growing buffer against financial shocks. 

The trend is likely to pick up after the latest rate cut, as National Australia Bank, Commonwealth Bank and ANZ Bank have a policy of leaving customers’ mortgage payments the same when their monthly interest bill falls. Westpac is the exception – it drops the monthly repayments of its customers when rates fall where it has set up a direct debit.

NAB said that on average, its customers were nearly 15 months ahead of their minimum repayments, up from 14 months a year ago and 12 months in 2012.

CBA’s result this month also showed more borrowers paying off their mortgages ahead of schedule, with 77 per cent of customers ahead of their minimum payments at CBA. Including mortgage offset accounts, CBA customers were ahead by an average of 31 months on their loan repayments, up from 27 months a year earlier.

NAB’s general manager of home lending Meg Bonighton,said customers had the option of reducing their repayments, but the default for the bank was to leave repayments unchanged.

“Four years ago, the average home loan account was 12 months ahead on its repayments; today, it’s almost 15 months ahead. This is great to see, because it means our customers are closer to paying off their mortgages, and are paying less interest,” she said.

“When interest rates are reduced, the monthly repayment amount remains the same unless the customer requests to change it. Some customers do choose to reduce their repayment amount, while some choose to keep it the same.”

Over several years, customers can knock thousands of dollars off their loans keeping payments unchanged as rates fall.

If a customer with a $300,000 loan had kept their minimum monthly payments unchanged since the RBA began cutting interest rates in late 2011, they would be $18,250 further ahead on their mortgage principal, according to interest rate comparison website Mozo.

That assumes a 30-year loan with minimum monthly payments of $2108 a month and an interest rate equal to the average major bank standard variable rate.

While the trend points to an improvement in some households’ financial position, it also highlights the limitations of cutting interest rates as a way of boosting the economy.

UTXW4UYTR

Henry Sapiecha

Tags: , ,

HOW TO SAVE BIG DOLLARS ON YOUR HOME MORTGAGE

Posted by Henry | RATE % COMPARISONS,REFINANCE | Sunday 5 October 2014 8:31 am

Paying 0.50% less on your home loan could save you up to $32,500 over the life of the loan*

HOUSE MONEY SUIT

Refinancing Home Loans Comparison

Loans.com.au Dream Home Loan - <90% LVR
Loans.com.au Dream Home Loan – <90% LVR
No application or annual fees with access to a 100% offset account on the loan. 4.54%
4.56%
$0 / $0 90% Go to siteMore info
ME Bank Standard Fixed Rate Home Loan - 3 Year Fixed Rate
ME Bank Standard Fixed Rate Home Loan – 3 Year Fixed Rate
No application fee or ongoing account keeping fees when you lock in a 3 year fixed rate. 4.59%
5.18%
$0 / $0 80% Go to siteMore info
NAB National Choice Package Home Loan - 5 Year Fixed
NAB National Choice Package Home Loan – 5 Year Fixed
Refinance and lock in a low interest rate for 5 years. $1000 eftpos card offer. 4.99%
5.54%
$0 / $395 95% Go to siteMore info
CUA Fresh Start Home Loan
CUA Fresh Start Home Loan
A discounted variable rate home loan with low fees and a 100% offset account. 4.65%
4.66%
$0 / $0 80% Go to siteMore info
Bank of Queensland Clear Path Variable Rate Home Loan
Bank of Queensland Clear Path Variable Rate Home Loan
A low interest rate home loan with no application fee. 4.87%
5.00%
$0 / $120 80% Go to siteMore info
Newcastle Permanent Fixed Rate Home Loan - 2 year fixed
Newcastle Permanent Fixed Rate Home Loan – 2 year fixed
Fixed loans repayments and no ongoing account fees and a limited offer of $1000 cashback. 4.29%
5.35%
$0 / $0 95% Go to siteMore info
NAB National Choice Package Variable Rate - ($250,000 to $499,999)
NAB National Choice Package Variable Rate – ($250,000 to $499,999)
Consider a packaged home loan option with a great interest rate. $1000 eftpos card offer for new applicants. 5.08%
5.46%
$0 / $395 95% Go to siteMore info
Loans.com.au Dream Home Loan​ Fixed - 2 Year Fixed Rate
Loans.com.au Dream Home Loan​ Fixed – 2 Year Fixed Rate
Another low interest rate offer from loans.com.au. No application fee to pay. 4.72%
4.59%
$0 / $0 90% Go to siteMore info
NAB National Choice Package Home Loan - 2 Year Fixed
NAB National Choice Package Home Loan – 2 Year Fixed
A fixed rate package home loan with no application fee. 4.84%
5.58%
$0 / $395 95% Go to siteMore info
IMB Fixed Rate Home Loan - 1 Year Fixed
IMB Fixed Rate Home Loan – 1 Year Fixed
A good deal for 1 year fixed rate terms. 3.99%
5.33%
$445 / $72 90% Go to siteMore info
Newcastle Permanent Premium Plus Package Home Loan - Tier 1: $250k to $499k
Newcastle Permanent Premium Plus Package Home Loan – Tier 1: $250k to $499k
Refinance with this great offer from Newcastle Permanent and pay no application fee. Also enjoy a $1000 cashback. 4.62%
4.67%
$0 / $375 80% Go to siteMore info
ING  DIRECT Orange Advantage Loan - $250K+ (LVR ≤ 80%)
ING DIRECT Orange Advantage Loan – $250K+ (LVR ≤ 80%)
Pay no annual fee for the first year with this packaged variable rate home loan with offset. 4.83%
5.02%
$0 / $199 80% Go to siteMore info
Greater Building Society Discount Ultimate Home Loan - $300K+ or LVR <80%
Greater Building Society Discount Ultimate Home Loan – $300K+ or LVR <80%
A great offer from Greater Building Society with a discounted home loan variable rate package. 4.84%
5.22%
$0 / $375 80% Go to siteMore info
ANZ Breakfree Home Loan Package - $250,000 to $499,999
ANZ Breakfree Home Loan Package – $250,000 to $499,999
No annual fee, no application fee and a discounted variable rate home loan with redraw facility. 5.08% $0 / $375 80% Go to siteMore info
Bankwest Online Home Loan
Bankwest Online Home Loan
A low variable home loan rate with no ongoing fees. No application fee for a limited time. Exclusive online offer only. 4.88%
4.89%
$0 / $0 80% Go to siteMore info
HSBC Premier Home Loan
HSBC Premier Home Loan
A packaged discount loan offer for borrowings over $500 000 and a dedicated relationship manager. 4.78%
5.19%
$0 / $420 80% Go to siteMore info
Resi Home Loans Flexi Options Fixed - 3 Year Fixed Rate
Resi Home Loans Flexi Options Fixed – 3 Year Fixed Rate
An offset feature and 3 year fixed terms. Pay no application fee. 4.94%
5.25%
$150 / $0 95% DetailsMore info
IMB Essentials Home Loan
IMB Essentials Home Loan
100% offset account, unrestricted additional repayments and no monthly account keeping fees 4.98%
4.98%
$0 / $0 90% Go to siteMore info
Greater Building Society Ultimate Fixed Rate Home Loan - 1 Year Fixed
Greater Building Society Ultimate Fixed Rate Home Loan – 1 Year Fixed
A fixed rate package loan with a range of discounts offered for other Greater products. 4.29%
5.25%
$0 / $375 95% Go to siteMore info
Illawarra Home Loans Bank Beater Variable Home Loan - <80% LVR
Illawarra Home Loans Bank Beater Variable Home Loan – <80% LVR
No application fee and a low variable interest rate home loan with offset. 4.72%
5.02%
$0 / $345 80% Go to siteMore info
Bank of Queensland Fixed Rate Home Loan - 3 Year Fixed Rate
Bank of Queensland Fixed Rate Home Loan – 3 Year Fixed Rate
Lock in a fixed interest rate term for repayment certainty. 4.79%
5.81%
$300 / $120 80% Go to siteMore info
Yellow Brick Road Rate Smasher Home Loan
Yellow Brick Road Rate Smasher Home Loan
A low interest rate home loan with a no ongoing fee. 4.63%
4.64%
$0 / $0 70% Go to siteMore info
ANZ Simplicity Plus Basic Home Loan
ANZ Simplicity Plus Basic Home Loan
Refinance with your loan with a low variable rate and no ongoing fees. 5.18%
5.23%
$0 / $0 80% Go to siteMore info
Aussie Mortgage Broker Deal
Aussie Mortgage Broker Deal
Aussie Mortgage Broking deal. Compare from 19 major lenders. 4.69%
4.70%
$0 / $0 95% Go to siteMore info
ANZ Fixed Rate Home Loan - 2 Year Fixed Rate
ANZ Fixed Rate Home Loan – 2 Year Fixed Rate
If you’re looking to fix and interest rate for the next 2 years, ANZ offers this great rate with up to LVR for existing customers. 4.99%
5.77%
$600 / $120 90% Go to siteMore info
AMP Bank Essential Home Loan
AMP Bank Essential Home Loan
A competitive variable home loan offer with no monthly fee. 4.74%
4.76%
$0 / $0 80% DetailsMore info

What is refinancing?

In a nutshell, refinancing the process of switching your home loan, usually to a loan product with a different lender. Over the course of your life as a home owner or investor, there are many reasons why you might want to refinance, including selling your property to buy a new one, or you just want to find a better deal.


How does refinancing work?

Switching your home loan to a new lender involves six main steps.

1. Get a quote of your exit costs

To avoid getting a rude shock when you refinance, it should always follow a period of research. The easiest way to do this is by making a call to your existing lender. Tell them you want to refinance and that you want to know exactly how much it will cost you to exit the loan.

This serves a dual purpose: you’ll get an exact quote on how much it’ll cost you to exit your home loan, and your lender will also have a chance to give you their best deal. Note down the deal they offer, and then tell them you’ll think about it.

2. Compare

Now that you’ve worked out how much it’s going to cost you to leave your loan, you can begin comparing new home loans. Read on below to find out how to do this in more depth, but for now you should consider why you’re refinancing, and then adjust the loans you’re looking at to that.

Different home loans suit different life stages, refer to the diagram below to see what kind of loans may suit you. For example, if you’re looking to secure a competitive fixed rate before rates rise, you’ll want to begin comparing fixed or split rate home loans.

Refinancing lifestages

3. Find out the costs of the new loan

The next step in a refinancing comparison is to work out what upfront fees your new lender will charge you, and add these to your exit costs.

4. Apply for the new loan

Once you’ve worked out if the savings of refinancing outweigh the costs, and you’ve found a loan you want to apply for, you’ll need to lodge an application for the new home loan.

5. Exit your old loan

When this is approved, you or your new lender will need to request that your existing lender discharge your mortgage. After this occurs your new lender will pay out your existing lender and they’ll receive the title deeds for your property.

6. Settlement and repayments

When the settlement of funds occurs you’ll begin making repayments to your new lenders.

Back To Top


When should you refinance?

Should arrow

Refinancing can be carried out to help homeowners and investors. Here are a few of the reasons why you might want to refinance:

  • To access the equity you’ve built up in your home for different purposes such as buying an investment property, car, holiday or paying for renovations
  • To get a home loan with a lower interest rate, so that your repayments are lower
  • To get a home loan with a different rate, such as switching from a variable rate to a competitive fixed rate
  • To get a home loan with lower fees, such as no monthly or annual fees, or fees for using features such as offset accounts
  • To get a home loan with better features such as an offset account, the ability to make additional repayments, or redraw facilities
  • To consolidate other debt with higher interest rates such as credit cards and personal loans so you pay less in interest
  • To split assets in the event that you divorce or separate from your partner

If any of the reasons above look good enough to switch right now, remember that your new lender will charge you entry fees for taking out your new loan. And while exit fees are banned for variable rate home loans entered into after 1 July 2011, fixed rate home loans still come with expensive break costs, and most loans will have some kind of discharge fees associated with them to get your title back.

According to the experts, when is it time to refinance your mortgage?

OOO

What is refinancing?

In a nutshell, refinancing the process of switching your home loan, usually to a loan product with a different lender. Over the course of your life as a home owner or investor, there are many reasons why you might want to refinance, including selling your property to buy a new one, or you just want to find a better deal.

How does refinancing work?

Switching your home loan to a new lender involves six main steps.

1. Get a quote of your exit costs

To avoid getting a rude shock when you refinance, it should always follow a period of research. The easiest way to do this is by making a call to your existing lender. Tell them you want to refinance and that you want to know exactly how much it will cost you to exit the loan.

This serves a dual purpose: you’ll get an exact quote on how much it’ll cost you to exit your home loan, and your lender will also have a chance to give you their best deal. Note down the deal they offer, and then tell them you’ll think about it.

2. Compare

Now that you’ve worked out how much it’s going to cost you to leave your loan, you can begin comparing new home loans. Read on below to find out how to do this in more depth, but for now you should consider why you’re refinancing, and then adjust the loans you’re looking at to that.

Different home loans suit different life stages, refer to the diagram below to see what kind of loans may suit you. For example, if you’re looking to secure a competitive fixed rate before rates rise, you’ll want to begin comparing fixed or split rate home loans.

3. Find out the costs of the new loan

The next step in a refinancing comparison is to work out what upfront fees your new lender will charge you, and add these to your exit costs.

4. Apply for the new loan

Once you’ve worked out if the savings of refinancing outweigh the costs, and you’ve found a loan you want to apply for, you’ll need to lodge an application for the new home loan.

5. Exit your old loan

When this is approved, you or your new lender will need to request that your existing lender discharge your mortgage. After this occurs your new lender will pay out your existing lender and they’ll receive the title deeds for your property.

6. Settlement and repayments

When the settlement of funds occurs you’ll begin making repayments to your new lenders.

Back To Top

When should you refinance?

Refinancing can be carried out to help homeowners and investors. Here are a few of the reasons why you might want to refinance:

  • To access the equity you’ve built up in your home for different purposes such as buying an investment property, car, holiday or paying for renovations
  • To get a home loan with a lower interest rate, so that your repayments are lower
  • To get a home loan with a different rate, such as switching from a variable rate to a competitive fixed rate
  • To get a home loan with lower fees, such as no monthly or annual fees, or fees for using features such as offset accounts
  • To get a home loan with better features such as an offset account, the ability to make additional repayments, or redraw facilities
  • To consolidate other debt with higher interest rates such as credit cards and personal loans so you pay less in interest
  • To split assets in the event that you divorce or separate from your partner

If any of the reasons above look good enough to switch right now, remember that your new lender will charge you entry fees for taking out your new loan. And while exit fees are banned for variable rate home loans entered into after 1 July 2011, fixed rate home loans still come with expensive break costs, and most loans will have some kind of discharge fees associated with them to get your title back.

According to the experts, when is it time to refinance your mortgage?

Stuart Tucker: General Manager Marketing and Products. Aussie Group

Noel Whittaker – Finance Expert at Sydney Morning Herald

“The fact that the banks are urging us to refinance to a fixed rate is probably a good reason not to do it. The problem with fixed rates is the inflexibility – in most cases you can’t make extra repayments if you choose. However, it must be said that there are some fixed rate loans that do allow repayments of a small amount of principal. Also, fixed rate loans can have heavy exit fees – the average house changes hands every seven years and often people’s circumstances change and they are forced to change and incur exit costs. I guess in simple terms you lose if you take a fixed rate and rates fall because you miss out on the lower variable rate and at the same time open yourself to potential heavy exit fees. However, if rates rise, you have locked in the present cheap rate and exit fee should be minimal as the base would be happy to get out of a cheap loan and re-lend the money to someone else a high rate.”

Belinda Williamson – Former Head of Corporate Affairs at Mortgage Choice.

“In an environment of falling interest rates and intense competition between lenders it makes good financial sense for borrowers to regularly check if their existing home loan offers a competitive interest rate, charges minimal fees and value-for-money features suited to their lifestyle and needs. With new products constantly entering the competitive home loan market, borrowers should be taking the time to regularly assess their loan situation at least once a year to ensure it meets their current needs and future investment goals and to see if there are any new deals that they might benefit from.”

Rob Dawson – Representative at Charter Financial Planning

“Your decision to refinance your debts is also affected by your own expectations about your capacity to repay the debt and job security. Typically when interest rates are low, an individual with a secure job may feel more comfortable with the application process to consolidate various loans debts and credit cards into one loan, possibly at a new lower rate and commence an assertive repayment program. On the other hand, if the economy is weak and your perceptions of future job security is low, but your current role seems good for now, then you may still be in a good position to refinance but you may not feel comfortable about doing it. However, consolidating debt ahead of any period of instability can be a good move, if your repayments are more manageable later and it helps to get through that time frame. The most difficult period to refinance is obviously if you cannot show stable income and work patterns to prospective lenders.”

When shouldn’t you refinance?

Even if you have a good reason for refinancing, there are times when it’s just not practical. Here are some of them:

  • You have a fixed rate home loan with a very high exit cost – the cost of fees could outweigh the benefits of switching until the fixed rate period is over.
  • You think you’ll probably sell your property in the near future – you might pay all the associated fees and then not keep the loan long enough to make any decent savings.
  • Your loan amount is small – in this case the savings you’ll get by refinancing might not be worth it as the interest you’ll pay will be small anyway.
  • The saving is small – If you’ve been with a lender for quite some time, enjoy the service you receive, and have other products with them, it might be better off asking your lender for a discount rather than refinancing.
  • Your property value has fallen or your LVR is still over 80% – this could see you pay lender’s mortgage insurance again, and put you seriously behind in savings.

If you don’t think refinancing would be suitable to you, or if you’ve done the sums and it won’t net you any real savings, it’s always a great idea to call your lender anyway. If you tell them you’re thinking of leaving for a new lender, they will usually offer rate discounts. To compare two loans together and find out what your switching costs and potential savings might be, use the calculator below.

How to calculate the costs of refinancing

As mentioned above, you should first find out what the costs are for leaving your old loan.

Your exit costs could include:

  • Discharge fees. $200 – $400. These are usually charged by your old lender to give you back your title deeds.
  • Exit fees. $ varies. If your loan was entered into before 1 July 2011 you may still have to pay mortgage exit fees, even on a variable rate home loan. These can be quite expensive, but you might be able to get a discount from your lender. If you have a fixed rate home loan, you’ll still have to pay exit fees as your lender could be losing out by letting you leave your loan.

 

The upfront costs you could pay include:

    • Application/establishment fees. $200 – $600. These fees cover the initial costs of setting up your home loan.
    • Valuation fees. $100 – $300. Your new lender will want to have your property valued to decide how much to lend you. This fee covers the cost of an independent valuer.
    • Settlement fees. $100 – $300. This fee covers the cost of your lender arranging your funds.
    • Legal fees. $75 – $150. These fees cover the cost of your lenders solicitors which arises out of your application.
    • Stamp duty. $ varies. You may have to pay stamp duty when refinancing, which is charged by the state. We have a stamp duty calculator you can use to get an estimate of how much you might pay.
    • Lender’s Mortgage Insurance (LMI). $ varies. If you’re borrowing over 80% of the property value you could have to pay LMI premiums. This can cost well into the thousands, and depends on how large your loan is and how much equity you have.
    • Ongoing costs. $ varies. A home loan might keep charging you fees even once you’ve settled. Things like redraw fees, monthly fees or annual fees should be taken into account.

You can use our calculator below to help you work out whether or not refinancing is worth it.

How much will it cost you to refinance?

Application fee ?

Lenders Mortgage Insurance (LMI) ?

Legal fee ?

Discharge fee ?

Valuation fee ?

Registration fee

Service fee

Legal fees ?

Settlement fee

Stamp Duty ?

Exit fee

Rate Lock fee ?

Early Termination fee

TOTAL 0

Savings

Cost

Refinance?

 

Back To Top

What types of loans can you refinance to?

You can refinance to any home loan you’re eligible for. This may include:

Variable rate home loans These loans have an interest rate which can fluctuate depending on economic factors each month. They are usually flexible and can come with a range of features
Fixed rate home loans With a fixed rate home loan you can lock in a rate for a period usually between one to five years and be protected from rate rises. These loans are generally less flexible than variable rate home loans and can come with more expensive exit fees
Split rate home loans Split rate loans allow you to enjoy a mixture of variable and fixed rates. This means you can enjoy the benefits of both
Low doc home loans A low doc loan can be applied for if you’re self employed or can’t prove your income with the usual required documents
Bad credit home loans These loans usually have higher interest rates or fees, but in exchange can be applied for by those with defaults or other negative marks on their credit file
Line of credit home loans These are also known as equity loans, and give you a revolving line of credit much like a credit card. The difference is this type of loan uses your equity to provide funds

Different loan types

There are also different loan types available for most of the loan products above. These include:

Basic home loans – These are home loans which have low rates and fees but come with minimal features as a result.

Standard home loan – These home loans are a step up from basic home loans, and includes an array of features that help you pay off your home loan faster such as offset accounts, redraw facilities and additional repayments. However, they often come with a higher annual fee.

Package home loans – These loans generally come with the full range of features, as well as rate discounts and discounts on other products the lender offers. Some fees are also waived. In return for this you’ll generally pay an annual fee which can range between $300 – $500.

Green home loans – These home loans reward those with environmentally friendly homes with lower rates.

Back To Top

How to compare loans when refinancing

How you should compare home loans when refinancing will depend on the reason why you’re refinancing. Regardless, there are some factors you should always add to your comparison no matter if you’re refinancing for a better rate or to get access to a feature like an offset account.

Interest rates – The advertised interest rate has a large impact on how much your repayments are each month. Be sure that if you do compare home loans based on their rate that you also take into account the comparison rate. This is a rate which takes into account some of the fees the loan charges. Also if the interest rate you’ll receive is an introductory offer, you should be sure that the revert rate is still competitive.

Fees – Fees should always feature in a home loan comparison. Compare the application or establishment fees, ongoing fees, valuation fees, monthly or annual fees, and any other fees for using features such redraw facilities or 100% offset accounts. Just because a home loan has an annual fee or application fee it doesn’t mean it should be avoided. Take the time to look at it in depth and find out whether the fees are worth it for the benefits.

Features – Many borrowers will want to refinance in order to get access to money saving features. Ensure that the features you’re looking for don’t come with any hidden costs, such as offset accounts with monthly service fees. If you’re after an offset account, ensure that it’s a 100% offset account and not a partial offset account. If you’re looking for a fixed home loan which allows additional repayments for example, ensure that the limit of additional repayments that can be made is suitable for your needs.

Incentives – Many home loans will offer those refinancing cash incentives during ‘mortgage season’ which is usually around Spring. These are usually around the $1,000 mark, but can be as high as $2,000. These can be a great way to minimise the costs of refinancing, but be sure that the loan you’re applying for still has a competitive rate, fees and features so that once the cash back is gone you’re not left with an uncompetitive loan.

Back To Top

The pros and cons of refinancing

There are advantages and disadvantages to refinancing, so be sure to do your research before switching.

  • Pros
  • The opportunity to get a home loan with lower rates, lower fees, or more useful features
  • The ability to unlock equity in your home to renovate, go on a holiday, or make a purchase
  • The opportunity to consolidate other debts into your home loan and pay a lower interest rate on them
  • Cons
  • Can be expensive depending on your old home loan, in some cases the costs can outweigh the savings
  • If you refinance to a longer loan term you could pay more interest over the life of your loan

Back To Top

Things to avoid when refinancing

When you’re refinancing, be sure to select a home loan which is right for you. Home loan lenders will reserve some of their most competitive offers and bonuses for those refinancing, so ensure that the loan you apply for is competitive once the bonus offers end. The last thing you want is to be stuck with a home loan which is worse than the one you had before switching.

Also take into account fees when comparing home loans. You don’t want to switch home loans if the costs of switching far outweigh the benefit of any savings you’ll receive from lower rates.

Remember too that if you refinance to a term which is longer than the term you currently have, you could end up paying more in the long run as you’ll be paying interest for longer.

Also keep in mind that if your LVR is over 80% when refinancing you could have to pay Lender’s Mortgage Insurance (LMI). If you’ve had your loan for less than two years you could be eligible for a refund on your original LMI premium, so be sure to contact your original lender if you decide to refinance.

Before applying for the new home loan, make one last quick call to your existing lender. See if they can offer you any last discounts to keep your business.

Here are some other quick tips and things to avoid when refinancing:

      • Don’t apply for numerous home loan products when refinancing – each of these applications will be recorded on your credit file, and too many can make it harder to qualify for new forms of credit in the future
      • Use a borrowing calculator to help you decide if you’d be eligible for the loan size you want
      • Ensure you can make additional repayments on your home loan – you never know when you might run into extra cash which you might want to sink into your home loan

Back To Top

Frequently asked questions about refinancing

I’m struggling with my debts, should I refinance?

It’s always best to contact your lender before refinancing, as they may be able to help you temporarily if you’re experiencing financial difficulties.

You can also get into contact with a free financial counsellor to get help managing your difficulties.

Should I consolidate my credit card or other debts into my home loan?

You should always seek the advice of an accountant or financial advisor before considering refinancing and adding in other debts to your home loan.

While it may seem like a good idea to roll other high interest debts into your home loan and pay a lower interest rate, you should be aware that these debts will take much longer to pay off because a home loan is generally taken over much longer periods of time. This means what was once a small debt could become much bigger due to interest.

Can I refinance if I have bad credit?

Some lenders will accept bad credit borrowers, but might charge higher interest rates and fees. It’s a good idea to get a copy of your credit file before making any applications. Also note that some services like those of a credit repair company, can in some cases help to remove some negative listings on your file.

I don’t have the time to compare home loans, what should I do?

If you’d like to refinance but don’t have the time, you could consider the services of a mortgage broker. They can help find you a loan which suits you and your financial status.

What is equity?

Equity refers to the amount of your property that you own outright. As you pay your loan down, and your property increases in value this amount can increase.

Are there any tax implications when refinancing?

Henry Sapiecha

hunded dollar notes line

Tags: , ,