Want to switch banks for a cheaper mortgage? Here’s how

Switching your mortgage to another bank will save you thousands a year.
Credit: Bob Oh, Unsplash.
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No matter how old or large your home loan, switching your mortgage to another bank will save you thousands. Here’s what you need to know and what you should do next.

How is switching cheaper?

Three main reasons. One, a rule of thumb that home loan experts go by: if your mortgage is 2-3 years old, your interest rate is high. That means you could get a better deal on the same loan today, or a better deal by refinancing (switching your mortgage to another bank). This is why many money experts recommend reviewing your mortgage every two years (or if that’s too much of a headache, having someone review it for you).

Two, the economic recession has dragged interest rates down to all time lows. Just last November, the Reserve Bank of Australia announced their decision to slash interest rates in response to the recession brought on by the pandemic. The official cash rate is expected to stay at 0.1% until 2024.

Some banks and lenders have honoured this change and reduced their rates. For example, Suncorp is now offering a 1.89% two-year fixed home loan rate (read more about that here). Unless you got a home loan in the last two months, it won’t compete with the offers out there now.

Three, new customers always get better rates than existing customers. We know this as ex-bankers ourselves. Banks, especially the big retail ones, are known for giving new customers significantly better rates. This is because gaining new customers adds value to their company. In comparison, existing customers are charged more for the same product. Think of it as you’re paying for the convenience of staying with one bank. Only, you’re often paying a lot for that convenience, so ask yourself: is it worth the cost difference?

What you need to know

Know your interest rate. Most Aussie borrowers don’t know what their rate is. If that’s you, don’t panic. If this information isn’t on your statements (and sometimes it isn’t), then you can give your bank a call or visit to find out.

Know your budget. Could you do with a few extra thou? When would you like to have paid off your mortgage?

Think about the pros now versus the pros you want. What benefits do you get from your current home loan? Is it having an offset account, redraw facility? No ongoing fees?

What are the downsides of your current loan? Is there a fee to discharge from your current home loan?

It’s worth having answers to these questions, or at least an idea. This will help you figure out if it is cost-effective to refinance.

Next steps

What do I do now?

It may feel overwhelming, but shopping around for home loans is becoming increasingly normal. It’s not just financially savvy investors doing it – it’s simply best practice for borrowing. Have you ever changed phone plans because you found something cheaper? Switched supermarkets because one had more items that you want? Treat your home loan the same way.

You can always ring your bank for a better deal. Say that you heard about the RBA’s cut to interest rates, and/or you’ve been with them for n years. However, as we’ve said, you can’t assume your bank has your interests at heart, so it’s worth shopping around every few years. A good way to start is by calling a mortgage broker, which you can do for free. They can give you a quote for refinancing. If you’re confident, call more than one broker for a better idea.

Research tells us that many Aussies find the idea of refinancing too hard, or are otherwise are discouraged because all financial institutions seem the same. They’re not. Thinking that way will keep you with the same bank for everything your whole life, which is what banks like the big four. All that guarantees is that you’ll pay more than you need to.

Support

If you’re comfortable negotiating your home loan by yourself, go for it. With practice, you’ll find it easy to shop around. If you’re not comfortable doing that, you are not alone. Many financial institutions deliberately make refinancing hard and unapproachable because they don’t want to lose customers. We’re here to help, free of charge. As socially responsible mortgage brokers, we’re straight with you about our business and guarantee we’ll get the best deal for you, not the bank or ourselves. If you go through us, you’ll also receive a tax deduction as we donate part of our commission to a charity in your name.

Switching your mortgage to another bank shouldn’t be too hard, time-consuming or expensive. Shop around, with a broker if that’s easier for you, and you’ll thank yourself later when you save thousands each year.

Disclaimer: The information provided is general in nature and does not constitute financial advice. Please speak to us for recommendations on your individual circumstance and requirements.