Home Loan Switching

That old cliché “it pays to shop around” has been used a lot over the past few weeks by our Treasurer, Wayne Swan following an unofficial increase in rates and now even the PM has jumped on the band wagon recommending consumers make a switch if they’re unhappy with their interest rate.

It’s true that Mr Swan has made it easier for consumers to change lenders with last year’s abolition of exit fees.  But continually refinancing your loan to chase a better deal is fraught with danger.  If you switch you need to weigh up the cost of legal and valuation fees and how much extra you’ll pay by extending the life of your loan.  Put simply if you switch after say 3 years and enter into a new 30 year loan you are extending the life of the loan and thus paying even more interest.

So before making any rash decisions about switching lenders, first try squeezing ‘the devil you know’ for a better deal.  You can do this by:

1. Simply calling your lender and asking them what they’re prepared to do to keep your business.  Tell them you’re prepared to refinance and provide them with a quote of what a competitor has offered you.  You might be surprised to find you get a reduction without having to make that switch.

2. Be open to looking further afield than the big banks.  There are scores of non-banks, credit unions and building societies in business who are currently offering lower rates than the Big 4 banks.

3. Don’t discount the online lenders who operate electronically.  As they don’t have to pay for a shop front or sales person they’re able to provide significant discounts.  However, remember to ask who they are funded by so you can feel confident your loan is secure.  Often these online lenders can offer rates of between 0.9 and 1.2% lower than the banks.

4. When seeing new lenders take quotes and interest rates that you’ve been offered by other providers with you.  This shows a new lender that you are fair dinkum and want the best possible deal.  It’s also a great idea to have the last 6 months of loan statements with you to show you are a quality borrower and not a risk.

5. Be prepared to “walk the walk”.  Actions speak louder than words so if you strike out with your lender and you really are serious about getting a better deal then it’s time to make that switch.  If everyone walked providers would be forced to provide better value for their customers.  Most banks ironically are banking on customers staying put.

Paul Ryan is the CEO of Intouchfinance.  Paul’s opinions on home lending practices and finance are often sought by the mainstream media including television, print and radio.