Australia, it appears, is fast becoming a ‘nation of ditchers’ in a rather literal sense.
Incidentally, this is not limited to the political spectrum where Julia Gillard replaced Kevin Rudd in the Labour Government, only for Rudd to replace her again. In the home loan sector, it seems like matters are no different.
Home loan switching
Consider this - in between June 2010 and July 2013 more than half a million Australian borrowers switched their mortgage lenders. July 2013 also saw the highest number of refinancers in the last five and a half years. Data from finder.com.au also goes to show that more than 20% people with variable home loans have opted for better options since June 2010.
This makes is clear that Australians don't mind ditching their lenders when presented with better options and it is the presence of these alternatives that continue to bring about more switches.
So, why switch?
The answer to this is simple; switching to a better home loan can help you save a fair amount of money. There are borrowers out there who look for more than just better interest rates and lower fees. A borrower with a no-frills home loan, for example, might find the need to look for a loan that offers additional facilities like a linked credit card, the ability to redraw and direct salary credit.
While the general notion is that many Australians should be happy with lower interest rates on existing loans, this is clearly not the case. After all, despite the Reserve Bank dropping rates eight times since November 2011, borrowers continue to scout for better alternatives by comparing home loans on sites like finder.com.au.
Since competition is rising, more and more home loan providers are offering loans with special benefits in the hope to lure customers and from a borrower's point of view, this is a good period to make a switch. Before making a switch it makes sense to compare the offerings of multiple lenders and borrowers should also establish if they'd actually benefit by switching their loans.
Should you switch?
If you're considering ditching your lender go through the following checklist to find out if you should switch. Switch your loan if:
- You find a better option in terms of rates or fees
- You have a variable rate loan
- You have more than 20% equity (otherwise you'd have to pay mortgage insurance)
- Your loan was approved after July 1, 2011 (ensures no exit fees)
- The charges involved in exiting your existing home loan and applying for a new one are covered in the first two years.
Don't switch if:
- You have a fixed rate loan (most tend to attract considerable breakaway costs).
- You have less than 20% equity (you'd have to pay mortgage insurance).
- Your loan was approved prior to July 1, 2011 (most attract considerable early exit fees).
- You cannot cover the charges involved in exiting your existing home loan and applying for a new one in the first two years (your savings don't outweigh the costs of refinancing).
The decision of whether to ditch your lender or not is ultimately yours and the advice on this page should be treated as general advice. Although finder.com.au can certainly help you in comparing home loans provided by just about every leading Australian lender, consult a mortgage broker will also help.