For immediate release
Information verified correct on February 21st, 2017
Good news for borrowers despite rate pause: cheaper to switch home loans
- No cash rate change predicted in finder.com.au Reserve Bank Survey
- Refinancing myth debunked: more lenders cutting fees
- Borrowers with a $300,000 home loan could potentially save over $16,000 by switching!
April 1, 2014, Sydney – Despite no cash rate change by the Reserve Bank today, one of Australia’s biggest comparison websites finder.com.au/home-loans found some good news for borrowers with new research showing cheaper costs to switch home loans.
All 11 leading economists and money experts in the finder.com.au Reserve Bank survey predicted that the cash rate would be paused at 2.50 percent today, which is the eighth consecutive month with no change.
Michelle Hutchison, Money Expert at finder.com.au/home-loans, said hefty fees to switch variable home loans is a myth.
"Many borrowers are likely to be scared of switching their home loan with the fear of being charged exorbitant fees to break their loan contract by their existing lender and start a new one with a new lender. But this is a myth.
“It used to be the case in the past where we saw break costs of up to $25,000 or more if you wanted to switch in the first year but early exit fees for variable home loans taken out after July 1, 2011 were banned so it's a lot cheaper to switch than it used to be. In fact, we're also seeing more lenders waiving upfront fees.”
Research by finder.com.au/home-loans found 14 percent more variable home loans have no application fees, there are 74 loans with no application fees now compared with 65 in 2011.
Over two in five variable rate home loans in the finder.com.au database have no application fee. The average cost to switch now out of variable loans that charge these fees is $719 compared to almost $900 in 2011.
Mrs Hutchison said most borrowers could save thousands of dollars by comparing home loans and switching to a cheaper deal.
"It's a great idea to compare your home loan to the rest of the market every year or two and consider switching to a better deal, as long as you have more than 20 percent equity. If you have less than 20 percent equity you would have to pay lenders mortgage insurance (LMI) on the new loan which could outweigh the cost of switching. Fixed loans still come with break costs, which may be not worth switching either.
"For instance, an average $300,000 home loan switching from the average variable rate of 5.39 percent to a rate 0.25 percentage points less, could save you over $16,000 over the life of a 30-year loan even after deducting the average cost of switching at $719.
“If you found a loan that's 0.50 percentage points cheaper, this could save you over $32,500 over the loan term after deducting the average cost to switch.
"Borrowers don't need to wait for the Reserve Bank to cut interest rates and many can afford to refinance and get a better deal. There were almost 200,000 borrowers (195,887) who took advantage of the competition between lenders and refinanced their home loans in the past 12 months to January 2014. That's about one in three borrowers (source: Australian Bureau of Statistics).
“We're urging more borrowers to use this opportunity with the rate pause to consider switching their home loan to get ahead of their repayments before rates start to rise."
For further information
The information in this release is accurate as of the date published, but rates, fees and other product features may have changed. Please see updated product information on finder.com.au's review pages for the current correct values.
finder.com.au is one of Australia’s biggest comparison websites and has helped over 4.8 million Australians find better credit cards, home loans, life insurance, shopping deals and more since 2006. finder.com.au compares 250 credit and debit cards from 31 providers, over 300 home loan products, and information from 13 life insurance providers as well as online shopping promo codes, mobile phone plans, travel insurance and more. One Australian every five minutes is using finder.com.au or creditcardfinder.com.au to find better (Source: Google Analytics).