Should you be switching?

In a property market characterised by lacklustre price growth, and with the cost of living rising significantly, the temptation to seek out a better deal is certainly hard to resist. But is it really worth it?

The case for switching

Refinancing for a better home loan can certainly save you a lot of cash – if done correctly. Some key reasons to consider switching lender are: to secure a better interest rate, particularly if you are on a ‘honeymoon’ loan that has reverted to a higher rate; to make the move from variable to fixed – popular among those who want consistency in cash flow and security; to obtain a more flexible loan or one with features more suited to your needs; and to unlock the equity you have built up in your existing property/properties.

The case for staying put

According to the Mortgage and Finance Association of Australia (MFAA) Home Finance Index (May 2011), only 53 per cent of respondents who had refinanced in the previous 12 months claimed to have benefitted as a result.

There are certainly good reasons not to switch lender, and caution should be exercised regardless of what you decide to do.

MFAA chief executive Phil Naylor says sound advice regarding switching is crucial in the face of the banks’ home loans campaigning.

“Simply refinancing doesn’t always achieve the desired goal and switching for a better rate may not be as important as [retaining] the terms of the loan,” hhe says. “A mortgage is an important financial commitment which warrants a professional opinion.”

Certainly, you’ll need to consider the loan package overall. And even if exit fees don’t apply, there are still costs that you will need to account for, such as another valuation and, potentially, lender’s mortgage insurance (LMI).

The verdict

While there are many good reasons to switch lender, whether you do so is ultimately a personal decision and one that requires careful consideration.

You’ll need to assess your financial situation, including your existing loan obligations, the potential benefits of a new loan, your future plans and goals, and whether the potential benefits would outweigh the cost and time of switching.

If you know you aren’t happy with your existing financing arrangements, or you think you could save a significant amount with a new lender then speak to us. Moreover, if it’s been a while since you assessed your loan, it may well be worth exploring your options anyway.

At least then, if you discover you needn’t make a switch, you can feel happy in the knowledge that you’ve got your finances set up as effectively as possible.