If you already have a mortgage, you may have heard the terms “transitional finance” or “refinancing”. These sound like overcomplicated banking terms, so for the purpose of this blog, we’ll call it “switching”. When you look at home loans, the first thing you will realise is how many different products are available. Not all loans are created equal and each will have its benefits, but once you have decided and signed on the dotted line, its 30 years of living with your choice, right? While you are locked into paying that loan off in its entirety, you don’t have to stay with that lender for the duration of the loan.
The following frequently asked questions will answer some of the biggest queries about switching from one lender to another, why you should think about it and what to look out for if you decide to jump in.
Why should I switch?
It’s nothing personal. We’re not telling you to pack your things and head for the door. We’re simply asking you to take a look around and think about what’s best for you and your financial situation. Keystart’s aim is to help more people realise their dream of owning their own home. We kick-start that process by requiring smaller deposits, no Lender's Mortgage Insurance (LMI) and range of other benefits. However, once you begin to build some equity in your home, you may be able to get a better deal from another lender in the long term. This can include better interest rates, offset accounts and a number of other benefits that you can’t get with Keystart.
Unlike other lenders, we encourage our customers to transition so that we can then help another person into home ownership.
How much difference will it make?
The real question on everyone’s lips is how much will I save. Like every aspect of the home loan experience, this answer will fluctuate between each person and situation. In most cases, the interest rate has the highest impact on your home loan repayments. As of May 2017, the difference between the highest and lowest interest rates available across the banks was 2.30%. Over the lifetime of a loan, this difference could equate to tens of thousands of dollars.
How can I get the best deal?
Getting the best deal on your home loan all starts by comparing every possible deal you can find. There’s a lot of comparison websites out there designed for this exact purpose. These will save you hours of your time and give you a good picture of what’s available. You may also want to consult a mortgage broker to assist you in evaluating your options.
Once you’ve picked a handful of top contenders, put them up against each other. Every bank will be making money from your business, so make them work for it. Just like a gym membership, ask if they can waive joining fees, offer you any juicy benefits or simply make your mortgage experience that little bit simpler. You might be surprised what they are willing to throw in to get your business. Remember, you are in the driving seat on this one.
If you have any other loans, (car, personal or otherwise) ask if consolidating them with your chosen lender will allow you to get a better deal. The more business you do with a company, the more likely they are to give you a discount. But make sure you’re not losing money on your other loans for the sake of keeping everything in one place.
Another way to compare apples with apples is to look at Home Loan Fact Sheets. Home Loan Key Fact Sheets are a tool designed to give you the information you need when you’re shopping around for a home loan. With so many types of loans available they let you know what the interest rates and known fees are for a range of home loan products. The fact sheets will also highlight important information such as the total amount to be paid back over the life of the loan.
What should I look out for?
Similar to when you were picking a house to purchase, it’s easy to get sucked in by the flashing lights and pretty colours of a ‘great deal’. Make sure you take a step back and look at the true cost of your new loan. This means taking all fees and charges into consideration and not getting too lost in short term benefits. Mortgage insurance is a very important point to cover in this process but can often get overlooked or thrown in as an afterthought. The cost can be the difference between a great deal and a waste of time, so pay attention to the fine print.
Bear in mind too, interest rates will always be subject to change. Look at long-term trends when comparing rates. Most providers, financial advisers and brokers may be able to give their opinion on where interest rates are likely to go over the short and medium term.
If your loan is not with Keystart, ensure you don’t have any break or exit costs if you refinance. You may find this Money Smart Switching Home Loans article useful to read more about possible costs of switching.
How do I switch?
Before you jump into switching, get everything on your side of the fence sorted. Get your paperwork together and understand exactly where you’re sitting, what you want to achieve from the process and how far you’re willing to go. Information is power, so simply understanding what cards you have in your hand can make all the difference.
Then contact the lender you have picked. A lot of people prefer to head into a brick and mortar branch, but most lenders will have an online enquiry form. Start there but be prepared, there is a good chance you are going to need to be on the phone at some point and it’s not always a quick call.
You will usually need to have enough equity in your home to meet the requirements of banks and other mainstream lenders. In order to calculate your equity, your new lender will do their own valuation on your home. Your lender’s calculation of the equity of your home may differ from your valuation.
Remember, this is your money and your home. If you don’t like where the switching process is going, don’t throw yourself into a situation you’ll struggle to get out of. So, shop around, ask the big (and the little) questions and make sure you come out a winner.
If you are thinking about transitioning to another lender and you would like to know more about Keystart's discharge process, contact our Client Services team on 1300 578 278 and press option 1.
Keystart recommends that you seek your own independent financial advice prior to making any decisions about your financial needs.