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Much to consider in moving mortgage

15/11/2010

Mortgage holders have been cautioned against making any hasty decisions about moving their home loan in the wake of the recent interest rate increases by some banks and offers of cash incentives by other lenders.

Smartline Personal Mortgage Advisers says that while there is obvious widespread anger at the decision to increase home loan rates above the Reserve Bank’s 0.25%, this shouldn’t mean people automatically look at “jumping ship”.

Smartline’s Managing Director Chris Acret said mortgage holders should also be cautious about some of the cash deals being offered by other lenders to move their home loan.

“Moving your mortgage is something that should be done only after careful consideration,” Mr Acret said. “While I can understand the community frustration, decisions made in haste and anger can often have long-term negative consequences.

“There are costs involved with moving your home loan, so you need to ensure that the benefits outweigh these and, if you’re seeking the recommendation of a mortgage adviser or lender, that they can justify any recommendations they make,” he said.

“Under recently introduced consumer credit regulations, a mortgage adviser needs to show that the product and lender are deemed ‘not unsuitable’ and need to be able to demonstrate to you the benefits of taking out a home loan with another lender and explain why a specific product and specific lender is being recommended.”

One of the key considerations when moving your mortgage is the associated fees.

Your existing lender will probably charge you exit fees, which are often referred to as ‘early termination fees’, which is the cost of closing the loan. Different banks use different terminology and early termination fees can also be known as deferred administration fees, deferred establishment fees or early repayment fees.

There has been recent speculation that the banks may abolish these in the near future as a result of government pressure, but this has not yet eventuated.

You may also be charged ‘other fees’ which can include a discharge fee, administration fee and any other associated fees.

While many people are aware there can be significant costs if you break out of a fixed rate home loan, they are often surprised by the costs they may face to move from a variable rate loan.

As with many aspects of home loans these days, there is quite a disparity in exit fees. Some lenders, generally larger banks, charge a flat fee of $750 to $1000 while others, generally non-bank lenders, may charge in the order of 2-2.5% of the loan balance. On the average $300,000 loan, this could mean a charge of more than $6000.

Mr Acret said that while exit fees are one factor that you should take in to account when selecting a lender and product, the level of importance placed on the exit fee would vary depending on your future plans.

“Exit fees generally apply in the first few years of the loan, so think about your plans for the property and expected timeframes,” Mr Acret said.

“If there is a real chance you may look to exit out of the loan within a few years, it may be worth considering the issue of exit fees a little more.”

You also need to be aware that there may be fees charged by your new lender – which could include an application fee, government charges associated with the registration of your mortgage and searches.

There is much more to your home loan than just the ‘headline’ interest rate and while you may hope to achieve some savings by moving lenders, there are many other considerations.

Loan features and loan structuring should be paramount considerations. It may be that you have a basic loan now but you want one with additional features, such as a repayment honeymoon or a redraw facility, because one partner is going to stop working for a while to stay at home with the new baby.

Alternatively, you might have a loan with all the ‘bells and whistles’ features that you find you don’t use and you would prefer a basic loan with a lower interest rate or one that doesn’t allow you such easy access to your funds.

As always, talk to your Smartline Personal Mortgage Adviser for more information.

 

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