3 Reasons to Switch Mortgage Lenders When You Refinance
2nd July 2020 - Freya Cormack
The next time you refinance, you might want to consider switching mortgage lenders, rather than remaining with your existing lender. It’s not necessary for everyone, but it can make a world of difference for the right homeowner.
There are a number of reasons why you’d want to find a new lender for your mortgage, and most will relate back to you being generally unhappy with your overall bank experience. In this article we’ll go through 3 different reasons why you should think about switching lenders when you next refinance your home loan.
1. Your current bank’s rates aren’t competitive
Despite record low interest rates at the moment, some lenders still aren’t offering the most competitive rates — particularly for existing customers. Always check on the rates your bank is offering to new customers and negotiate for a lower rate where possible.
However, sometimes banks won’t be willing to pass on rate cuts and you’ll find improved interest rates elsewhere. Don’t be misled by claims that banks reward loyalty, since they usually don’t.
Compare rates offered by other banks, including major and emerging players, and see if you can get a better deal. By securing even a marginally lower interest rate, you could save thousands of dollars.
Make sure that you are comparing similar home loan products and are aware of how your financial situation could be affecting your mortgage choices. Borrowers who were approved for loans while having a poor credit score might not be able to get the lowest interest rates.
If you have an investment or interest only home loan, you are likely to have a higher interest rate than a regular owner occupier with a P&I (principal and interest) home loan. Don’t waste time looking at owner occupier variable interest rates, for example.
While switching from a fixed interest rate mortgage isn’t impossible, it can be costly to do in the midst of your fixed period. When you refinance your fixed rate home loan before the fixed period ends, you could be required to pay break costs. Always find out how much you’ll have to pay and assess whether it will be better to switch at the end of the fixed term.
2. Poor customer service and communication
Don’t underestimate the importance of clear communication and good customer service from your home loan provider. Poor communication from a lender can look like:
- Not providing you with clear updates when making changes to their services
- Being difficult to reach for customer support enquiries
- Taking too long to respond to your enquiries
A big issue that some borrowers face with their mortgage lenders is a lack of convenience. For example, when a bank doesn’t offer a mobile app to easily make repayments, check your loan balance and offset account etc. While a mobile app or easy to use website aren’t essential, they can improve efficiency and save you time managing your home loan.
Poor customer service can lead a borrower to feel disrespected. If your bank frequently doesn’t pass on rate cuts to variable rate mortgage holders, you may feel like your bank doesn’t value your patronage.
When thinking about refinancing, don’t just focus on getting a lower interest rate. Poor communication and customer service can make your mortgage experience more stressful and frustrating than it needs to be.
If you are someone who likes to communicate face to face with a customer service staff member, opt for a traditional bank with physical branches. On the other hand, an online lender may offer extended customer service hours over the phone or internet.
3. Improved flexibility, home loan features and options
Some lenders are limited in the features and options they provide with their home loan packages. Before refinancing, make a list of the things you want in a home loan and cross-check with your prospective lender(s) to make sure that these features are available.
Features like offset accounts and redraw facilities can help borrowers save thousands in interest. An offset account works like a savings account linked to your loan balance. The funds in this account will reduce how much interest you owe. For example, if you have a $100,000 loan balance with $15,000 in an offset account, you’ll only pay interest on $85,000.
While most lenders do offer these features, some will limit how you can use them in accordance with your loan type (e.g. fixed or variable interest).
Some lenders will offer more flexible repayment options, while others will specialise in providing mortgages to non-conforming or high risk borrowers. Another potential benefit to switching lenders is facing fewer fees. Some lenders charge maintenance fees that can really add up over time.
What else should you be aware of when switching lenders?
Try to negotiate the length of your new loan repayment term as not all lenders will be super flexible in how they refinance your mortgage. Some lenders will only provide you with a 25 or 30 year loan term when refinancing, even if you only had 15 years left on your previous home loan.
The longer your loan is, the more you’ll pay in interest. So, the lower repayment amount might not be worth it if you’ll be spending thousands more in interest over the life of your loan.
Also calculate the costs of refinancing as it will usually be more expensive when switching lenders. Costs can include:
- Break costs for switching from a fixed interest rate
- Exit fees
- Application and establishment fees
- Maintenance costs
- Mortgage transfer
- Property valuation
Why should you stay with your current lender?
Sometimes, switching lenders won’t make sense. If you are happy with how your existing lender operates, including their communication style and customer service, you might like to stay with them.
A lender that is receptive to your requests, values your loyalty and who you are as a customer and person might be worth sticking with. And of course, it’s even better if they can offer you a competitive interest rate.
The benefits of remaining with your current lender are that you benefit from familiarity with how they work and you can potentially spend less money refinancing. Many lenders will lower your interest rate when asked, without requiring a full refinance.
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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
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*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
^The estimated average future interest savings is calculated as at 15 April 2020 based on Lendi assisting customers into new loans with an average interest rate reduction of 0.89% for the 11 months prior, and assuming a median loan term of 26 years on both the old and new loan and all monthly principal and interest repayments will be made on time. Any future savings figures are estimated averages only, and do not take into account any product features or fees (including refinancing or break costs). Your savings will be different.