Just like any other loan options, switching loans is not for everyone. It certainly is not for first time borrowers as it is specifically designed for a particular purpose. If you decide to switch, think carefully if switching will actually be more advantageous or detrimental.
Should I switch home loan?
This question is probably the first thing that many people who are looking into switching loans are asking. To be able to answer this, whether this option is viable, more beneficial on your part, and practical, among others.
By considering these factors, you can decide with certainty that this option is right for you and the best direction to take based on your current circumstances. In this article we will discuss further the specific conditions that should be met to help you decide whether you should switch your current home loans or not.
Before you switch
Before switching to a new loan, it’s best to actually talk to your current lender. In most cases, lenders may give you a better rate just to remain in doing business with you and continue that relationship.
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Since borrowers ditching their loans prematurely sends out a bad signal to lenders, they may provide a counter offer just to keep you. But despite signifying your intention of switching loans and no better offer has been given, it should help you decide whether to switch your current loan.
Reading the fineprint
The most common benefit that draws people from switching home loans is the lower interest rates that await them should they decide to ditch their old loan to a new one. This aspect is pretty much straightforward and logical.
However, while lower rates should be enough to attract you, you should also pay extra attention to other details and specifics that can outweigh its benefit. You will know the details of the loan by reading and carefully inspecting the fineprint of the loan.
The loan agreement will provide the borrower the specific of the new loan, the new rates, charges if any, and conditions, among others.
Things to expect
Once you have finally decided to switch loans and are currently looking for a new lender, there are things that you need to look into or consider before choosing which lender to pick.
The length of your new loan is probably one of the most important things to consider when deciding which lender to choose. Since lenders mostly make money mostly on interest rates, they will likely offer longer loan tenors.
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This means that the longer the length of your new loan, the higher interest you will be paying. If this is the case, your main reason to switch loans will be defeated. Ask if you can choose a length of your loan as this can have a major impact on the interest your new loan will incur.
Other important items to consider are how many direct debits are coming from the home loan account or associated transaction account with your current lender, as these need attending when shifting as payments can be dishonoured unintentionally .
Consider other costs
Switching loans is just the same as getting a new one inasmuch as associated costs are concerned. To fully maximise the benefit of getting a new one, ask for major costs such as the lender mortgage insurance (LMI), the exit fee, and the early termination fee, among others.
If there are substantial costs associated with your new one, then it should be enough to keep you from switching loans.
Darin Hindmarsh is the founder and CEO of Intellichoice Finance, a broking firm based in Brisbane, where he specialises in owner builder loans. He's been providing financial and broking services in the past 18 years. Hindmarsh is also finalist in the 2020 Australian Mortgage Awards - Pepper Money Broker of the Year – Specialist Lending. To jumpstart your home loan application, visit their home loan online application page today. Like and follow them on their Twitter and Facebook accounts.