CHOICE asked three borrowers to shop around for a better deal on their mortgage, and found that they can make savings on their home loan of up to $46,000 during the life of their loan. Find out how you could do it too.
- The best savings were achieved by switching to a credit union or an online subsidiary of a major bank – and you can’t get any of those loans through mortgage brokers.
- A good interest rate isn’t everything – you need to check that the costs of switching won’t outweigh the savings you’d make.
After the dramatic 1% rate cut by the Reserve Bank of Australia (RBA) in October, following a 0.25% cut the previous month, home owners have finally begun to see relief from a period of escalating interest rates.
It’s a different picture from the high-stress landscape in which we sent out our home loan shoppers in August: the RBA had increased rates 12 times since December 2001, from a cash rate low of 4.25% to a high of 7.25% (as this report was published in October 2008, rates were at 6%).
While falling interest rates have taken the immediate pressure off home owners, the competitive home loan market still leaves plenty of opportunity for customers to secure a better deal. Our scenarios highlight the huge savings possible through refinancing – or sometimes just using your research to negotiate a more competitive rate with your existing lender.
Please note: this information was current as of October 2008 but is still a useful guide to today's market.
Meet our borrowers:
Cate from inner Sydney. When Cate contacted CHOICE her interest rate had just gone up to 9.67% – a large increase compared with the 6.82% she paid when she took out her loan in April 2001.
Luke, Eugenie and son Cian from suburban Canberra. Luke and Eugenie face a problem, if they refinance before the fourth anniversary of their loan they’ll have to pay an early repayment fee of 0.45% of their original loan amount: $1620, plus a $300 discharge fee.
Adam and Debra from Sydney. Adam and Debra were in for a shock – after three years on 6.47% their interest rate would change to 9.11%, sending their minimum repayment up by about $775 per month.
We found cheaper options that can save our borrowers between $18,000 and $46,000 over the life of their loan. The best savings would be achieved by switching to a credit union or an online subsidiary of a major bank – and neither of these options is available through a mortgage broker.