Switching Lenders Could Save You Thousands

Can’t be bothered switching? Think it’s too soon to refinance? Delve a little deeper and you’ll realise the potential savings are enormous, writes Nicole Pedersen-McKinnon.

Since the credit crack up, and regulator crack down, mortgage holders can be forgiven for feeling like they have diminished power. Official and actual interest rates no longer bear any relation to each other, as lenders hike willy-nilly. Interest-only borrowers are being squeezed more than most. And all the maverick rate moves have created an almost tangible panic that is seeing many ask their lender to fix their rate. Well I say: wait! Commit to a fix and you are committed to that loan for, say, another three years. And, chances are, you should have left that lender for a cheaper deal years ago.

No exit fees to stop you

Many Australians don’t realise that it has been illegal to charge exit fees since 2011. That’s on loans taken out since then, which it’s possible yours was. But even if you’ve held your mortgage for longer than that, any penalty has to be fair and commensurate with the lender’s actual loss … ASIC has decreed it so. Long gone is the threat of a penalty as high as 5% of your loan, or $17,500 on an average $350,000 loan. The exception, to return to the fix point, is when you sign a contract for a period of time – say a three-year fixed rate. If you leave because you’ve found a better offer, the ‘commensurate’ penalty could be large indeed.

Low entry fees to prompt you

Enhancing Aussies’ relatively new-found mortgage mobility is fierce competition in the marketplace. With many new entrants, not just interest rates but also up-front fees have been tumbling. While, a decade ago, it was not uncommon to have loan establishment fees of, say, $1000, oftentimes today you will pay very little. Valuation fees have come right down, too. The test for how much you’ll pay up front, and on an ongoing basis, is something called the comparison rate. This second interest rate will be displayed alongside the ‘headline’ rate, and give you an indication of the true cost of the loan, taking into account fees. It helps you make a ‘comparison’ of available mortgage products.

Huge potential savings

But I can’t be bothered switching, I hear you say. Then you need to realise the potential savings are enormous. We’ll assume you currently have a $350,000 mortgage at an interest rate of 5.5%… these expensive loans are not uncommon either. Shift it to a lender charging only 4% – they get even cheaper than that – and your total interest bill drops more than $90,000, from $294,792 to $204,229. By the way, that puts an extra $301 a month in your pocket. However, if you don’t actually need that – after all, you are used to doing without it – you could take your interest rate savings to a whole new level. Simply keep your repayments the same and for ‘free’, you add nearly $50,000 to your interest saving. Are you motivated to do a quick interest rate search now? How much can I save by refinancing?Use UNO's calculator to estimate your savings. Calculate Savings

Just watch lenders’ mortgage insurance

The only thing that may stop you from remortgaging is lenders’ mortgage insurance. Now, this is a crazy type of insurance for which you pay the premiums and from which the lender, and not you, derives the protection. It protects them in the event you default on your mortgage and they don’t recoup what you owe from the sale of your property. (Many people get this confused with mortgage protection insurance, which can cover a borrower’s loan repayments if they are suddenly unable to meet them.) Crazier still, LMI is not portable, although you may get a partial refund if you discharge the loan within two years. If you move lenders, you may have to fork out to some extent again. Thankfully, you only pay lenders’ mortgage insurance if you borrow 80% or more of a property’s value. It is generally paid by first home buyers for whom saving the full 20% deposit, plus costs, may not be realistic. Below an 80%, what’s called loan-to-value ratio (LVR), there is usually no lenders’ mortgage insurance… and it’s worth noting borrowing only this amount means you can usually access the market’s cheapest interest rates as well. House price growth may have even pushed you below an 80% refinancing LVR without you realising it.

So how soon is too soon to switch?

If you have 20% or more equity in your home, it’s virtually never too soon to refinance. If there’s a cheaper product, your ultimate interest savings are probably enormous. Need a home loan?UNO. The new way to get a better deal. Book in a quick call with our customer care team.Get Started This information is general in nature and you should always seek professional advice when making financial decisions.Book a call in with UNO

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John Cahill
March 7, 2024
Scott Wilkinson was my broker last year when I sought finance for a new property investment and refinance for my property port folio. He was an absolute delight to work with. He was always professional, on time and always available to talk at a moment's notice to discuss my credit options and give well considered advice; usually this was very much after-hours due to my work commitments during the day. He was always happy to talk. I had not used a mortgage broker in a long time opting to do the re-financing myself. This was primarily due to disappointing experiences I'd had with mortgage brokers in the past. However with the increasing complex nature of dealing with credit providers, I could see that I needed a good advocate to act on my behalf for this particular refinance. In all honesty I did not hold much hope that in the current credit environment I would be able to secure the finance I required for the new property investment I was wishing to secure. Scott found a way however and was able to secure the finance along with the refinance of my portfolio. I have since referred friends to Scott and I know they have been very happy with his work. He is ideal for property investors who have busy day-jobs and need someone who understands property investment strategy and is able to tailor credit advice and options to their needs. Scott provides this advice and information in a way that is clear and concise. He kept me up to date continually during the application process. He made what could have been a very stressful and frustrating process easy and straightforward. I could not recommend Scott and the team at UNO Home Loans more highly. They are all a delight.
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We chose Uno Home Loans from their impressive web site knowing we were going to find it hard, on many fronts, to qualify for a home loan. We were incredibly fortunate to be assigned Mike Parsons as right from the get-go, despite the complexities, he hit the ground running for us. He was incredibly knowledgeable, with years of experience but what was immediately apparent and impressive was that he was totally invested in getting us over the line, doing absolutely everything possible, including working around the clock. Despite it being a relatively small loan in the order of things, Mike never missed a beat, getting docs ready, following up and answering every request from the proposed funder immediately. He kept us informed on progress the minute anything happened, and again if anything needed to be done, he was right on it. In short, we highly recommend Uno, and Mike, knowing what a remarkable job he did, over many weeks, to get us our loan. He got us a great deal, with far better rates than we expected, so we couldn't be happier. In fact, without doubt, you'd be hard pressed to find a more personable, sharp, hard working, dedicated professional who clearly prides himself on getting his customers standout results.
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February 6, 2024
Our mortgage recently came up for renewal, and with interest rates skyrocketing we were looking for ways to minimise the impact. Michael and his team were proactive and attentive. Michael spent time with us to understand our circumstances. He found mortgage options that worked with our current financial situation and longer investment plans. He presented clear options, providing guidance where needed. He and his team were helpful and responsive - streamlining the process and keeping us updated through the negotiations. In the end, Uno did the heavy lifting and secured a significantly better rate than our current bank offered, all with friendly, personal service. We would highly recommend UNO Home Loans.
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January 15, 2024
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December 18, 2023
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December 11, 2023
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