Refinancing your mortgage

The majority of Australian families have a mortgage…I know we are very blessed to be able to afford our own houses in very stable economic conditions.

A few months ago we took the decision to go through the process of refinancing our home loan and switching to another mortgage provider. This topic had been on our list for long but we kept pushing it out as we were just to busy.

Here is our learning from this exercise:

It is very time intensive. I am glad we went through the refinancing process whilst I was off work. Although it sounds easy and very straight forward, it is actually quite time intensive. Researching, submitting documents, signing them, checking with banks for the transferred amounts…it all takes time.

Check exit fees. Prepayment penalties might be very high on the exiting home loan and therefore the switch may not be attractive. In any case, there will be mandatory government and banking fees for transferring the loan which amounted to $500 for us.

Research. Your lender’s rate or finance model may no longer be competitive. It is a  good idea to check rates of at least three home loan providers. There are some good comparison websites. Make sure that you include all the fees when considering options. 

Do your maths. Just because a better rate is available doesn’t necessarily mean you’ll be saving money by switching home loans from your current lender to a new lender. Chasing a small rate reductions might not be worthwhile if you have established very strong relationships with your original lending provider. However, if you do it right, you could end up saving large sums of money.

Transfer offset savings. If you are using an offset account with your mortgage, you have to think about how you can transfer the amount to the new bank. Not all banks transfer larger amounts for free and may charge you a fee for doing so.

Change direct debits. This was a very time intensive exercise. Although we only have a handful of direct debits it took surprisingly  half a day to change them. For some providers it is unfortunately not just a matter of changing a form online. You may also have some direct debits or transfers that are only executed once a year. It is a good idea to have a look at your yearly incoming and outgoing costs to determine who needs to be contacted.

Close old accounts. Once you are out of the old mortgage contract you’d be surprise how much your bank can charge you for having an open bank account. It is best to close old and unused accounts to avoid unnecessary charges. You are also removing the risk of fraudulent activity on idle accounts.

Overall we are glad that we refinanced our home loan. The new bank has more advanced mobile banking capabilities and besides we’ll be saving a hundreds of Dollars every year.

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