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Don’t be afraid to refinance – it could save you tens of thousands: Mark Bouris

Don’t be afraid to refinance – it could save you tens of thousands: Mark Bouris
Don’t be afraid to refinance – it could save you tens of thousands: Mark Bouris

The major banks independently lifted their mortgage rates last week, and I was surprised with the number of questions I was being asked.

Many mortgage borrowers want to switch to a cheaper lender after these interest rate rises, but they’re confused about three questions: how much money will I save? What options do I have outside the major banks? And, is it worth the hassle of switching?

Let’s start with the first question: the answer is that you can save hundreds from your first new mortgage payment and you can save tens of thousands over the life of the new loan.

Let’s say two customers have an average $350,000, 30-year mortgage. The Westpac customer, with a standard variable rate of 7.46%, will pay $55,440 more over the life of the loan than the Yellow Brick Road customer, who has a rate of 6.84%.

Even a NAB customer, with the lowest standard variable rate of the big banks, will pay $38,160 more than a Yellow Brick Road customer.

This is simply the comparison sitting on my desk right now. Your job is to find your own examples and know how much you will pay over the life of your loan and then run different interest rates through the online calculators.

This brings me to the second question: what mortgage options are available to me?

To understand your options, I suggest two paths: you get online and research the comparison web sites, or you see a mortgage broker.

There are many comparison sites available on the internet. The service I find simplest is Canstar Star Ratings, but there are quite a few.

You should start by knowing exactly how your current loan works: the interest rate, the features, the fees, etc. Perhaps make a list of what you like about your current loan, because even if you think you’re paying too much, there may be features that you have come to rely on, such as 100% offset, fortnightly payments and easy redraw.

Be honest about the features – their value may be greater than what you can save.

Scroll down and look at how many home loans are cheaper than you’re paying, and then weed them out until you find the loans that also have the features and fees you want.

If it’s too daunting or time consuming, you can see a mortgage broker. These experts know the market and can match you with the best priced and best featured home loan.

It’s very rare that a broker can’t find a better loan than the one you have already – it’s their job.

The harder you look, the more you’ll find lenders you may not have heard of: credit unions, regional banks, building societies and mutuals.

Don’t be put off by their supposed obscurity. According to Abacus, the industry body for the Australian mutual sector, there are 119 mutual lenders in this country with a combined 4.6 million customers. Generally speaking, these lenders are the ones with the lower interest rates because they don’t need the high profit margins that the big banks rely on.

Armed with options and convinced you can save money, is it a hassle to actually change a home loan?

That depends on how organised you are. Personally I don’t think a few hours of collecting paperwork is a high price to pay for saving $40,000.

I suggest you do it this way: organise a new, lower-priced loan at a lender. You will need proof of identity, of employment and of earnings.

You’ll receive a written loan offer in which the new lender will commit to “buying out” your current loan, without exit fees of course.

Your options will now expand because in my experience, nine times out of 10 your current bank – when contacted by the new lender – will offer to match your new rate.

Having gone through this process, you now have real choice: choice of price and choice of who you borrow from. You have answered your own questions and come out with a better result than when you started.

This is how home lending should operate. That fact that it doesn’t frustrates me.

Borrowers either become complacent about their set-and-forget mortgage, or they’re scared of changing from a big bank.

What I would tell them is that the first thing you do when you change mortgage is change your attitude.

So you’d like to save $40,000 over the life of a mortgage? It could be time to change your attitude.

Mark Bouris is executive chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting and tax, and insurance.

This article first appeared in News Ltd. newspapers

 

 

 

Mark Bouris

Mark Bouris

Mark Bouris is executive chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting and tax, and insurance.

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