Banks have relied on Aussies paying the ‘lazy tax’ for generations. We think all banks are as bad as each other so there’s no point going through the hassle of switching loans.
But if you’ve been with the same bank for a long time, or even more than one year, you’re almost certainly not on their best deal.
In fact, while we think loyalty should be rewarded by lenders, the opposite is mostly true. They offer the best rates and features to new clients, while hoping their existing clients won’t notice.
But if we do notice, we can put the pressure on our banks to match a better deal or we will take our business elsewhere.
Meanwhile, the market for lenders trying to attract new business has become very competitive. Many have been slashing variable interest rates and throwing in sweet loan features to get borrowers interested and you may find that some of the new products out there are better suited to your situation than your existing deal.
So, with all this in mind, should you make the switch?
Before you take the plunge
Most people want to switch for a better interest rate. It’s an obvious benefit and it seems like the most important thing. But there are a number of things to consider before switching.
First, check out what else is out there on the market. Are the rates a lot better? Are the loan features flexible enough? Or will the fine print on a new product end up costing you the money you would have saved… and then some?
Last chance saloon
When you’ve found a better deal somewhere, wait one second. Here’s the opportunity to get your lender to match it, or beat it. You’ll be amazed how quickly your existing bank can magic up a deal out of thin air once you are serious about leaving.
All of a sudden, you’re getting the same deals, or even better, as those new customers you were jealous of not that long ago.
And you can avoid any fees, hurdles and forensic serviceability tests that come with switching.
Fees, fees, fees
We’ve already covered the lazy tax, so here’s the go-getter’s tax. If you do go ahead and switch, you’d better believe you’re going to have to pay someone for something.
Changing loans can set you back a multitude of charges, including fees for breaking a fixed loan contract (if you’re on a fixed loan); discharge or termination fee for closing your current loan; application fee (upfront) when applying for your new loan; and even a switching fee (charged by some lenders for when you stay with the same bank but take up a new offer).
Cold hard cash
While there are a number of fees or costs involved, a number of lenders are offering cashback rebates to entice borrowers to join them. Some major banks are offering up to $3000 cash back on some of their loan products, which can make up for switching costs and then some. Though it’s important to make sure the loan is right for you as it otherwise may cost you more over the long term than the cash you get back now.
For the longest time
Whether you switch or stick, one thing to bear in mind is the length of the loan term.
If you have 15 years left on a loan, you might think you would be disadvantaged by jumping ship to a 30 year mortgage term with another lender. However, paying it off over the longer period can improve cash flow because the repayments will be amortized over the 30 years. Your improved servicing capacity will also be beneficial for your investment strategy.
Lenders Mortgage Insurance
LMI is something you need to consider when you first borrow, but it should also be on your radar when you refinance, because there’s a chance you may not have 20% in equity, depending on what’s happened in the market. If that’s the case, switching might cost you more.
You are unique
If you have dreams of having six or more investment properties, you’re in a rare group that consists of just 1% of the population. And because you’re different from 99% of the others, chances are that 99% of the home loan products out there may not suit you.
You may need professional help from financial strategists that understand your goals. Zinger was set up to be a finance firm tailored to the needs of property investors.
Zinger always endeavours to structure finance so you can meet your investment goals. This means being able to access and release equity as it happens due to flexible valuation and refinancing arrangements, so you can keep acquiring properties and keep the cashflow coming in.
If you need help or educational tools, reach out to Zinger’s team of expert finance strategists.