A new report out from the consumer efficiency commission has found that consumers who have engaged with a mortgage broking service in the last 18 months had on average saved $2,750 per annum on their current mortgage interest.
The report which looked at borrowers interest costs from January 2019 until June 30 2020 had on average saved significant interest from refinancing their existing home loans or renegotiating their interest rate through their existing mortgage lender.
Perth local mortgage broker Jessica Peletier from perthbroker.com.au said that for over 80% of new clients she speaks to about refinancing can make significant savings. “with the majority of cases we see the borrower will be able to save enough interest to not only recuperate the borrowing costs within less than 3 months”. With many banks attempting to grow their market share through aggressive refinance offers, Jess notes that some lenders will offer rebates or cash backs to borrowers to cover some or all of their refinance costs. In some cases these rebates can be upwards of 200% of the actual costs to refinance, meaning that mortgage holders get ahead just from refinancing.
To weigh up the cost verses benefits of refinancing, borrowers need to consider not only any interest rate or fee savings, but the costs in refinancing. Common costs which are incurred during refinancing include:
- New home loan setup fees
- Existing home loan discharge fees
- Mortgage de-registration/registration fees
- Lenders mortgage insurance (if the loan is over 80% loan to value ratio)
- Fixed rate break fees (if the existing loan was on a current fixed term)
Jess says that for the majority of borrowers who are on a variable interest rate with a mainstream lender and have a good credit score, the costs of refinancing usually average around $1000, but it’s important to get the exact costs from a mortgage broker. “the biggest inhibitor of refinancing your home loan to save money will generally be if you’re on a fixed interest rate. If interest rates have fallen during the time you’ve fixed your loan, the lender can charge a break fee to recuperate their potential interest losses which can equate to thousands, potentially 10’s of thousands of dollars. If you’re on a fixed rate, you need to carefully weigh up whether the interest rate saving will outweigh this additional upfront cost.
The interest rate you see on the day isn’t the only thing you need to consider. Jess notes that some lenders will offer very competitive interest rates upfront, only to consistently increase them ahead of the market using bait and switch tactics. To counter this she recommends asking your broker about the track record of the lender with providing cost effective loan options and whether the product being offered is not only a good option for now, but for the future. From Jess “many borrowers get tricked into chasing the cheapest rate of the day, only to end up with a less than average option in the future which needs to be refinanced again. As a mortgage broker who is setting up loans which are upwards of 30 year terms, I think its incredibly important to look at the cost of a loan product over the long term so that what finance we setup today is still suitable for you tomorrow.”