When was the last time you checked your home loan?
That’s the question ME encourages Australian homeowners to ask themselves given that some home loan customers may be missing out on “significant savings” by not taking advantage of a loan with a lower interest rate or fee.
“A home loan is likely to be your biggest financial commitment, so it’s worth taking the time to review it from time to time,” says ME Managing Director John Powell.
But how can homeowners determine if their loan is actually competitive or not? Powell acknowledges that it can be tricky, but there are a few key things worth comparing from loan to loan.
“A lender may have a lower rate but higher fees or different features. Therefore, you should consider the interest rates, terms, loan costs and other factors that apply to your situation. This gives you the power to make an informed decision on which loan is right for you.
“It is also useful to refer to the advertised ‘comparison rate’ which lenders are required by law to disclose to the borrower. This will allow you to compare apples to apples.
Owners are refinancing in record numbers
For many borrowers, the sharp decline in home loan interest rates over the past few years has highlighted the competitiveness of their loans. As a result, many have chosen to refinance to a more competitive deal.
“Refinancing simply means transferring your home loan from your current lender to a new one, and it’s a process that can allow you to reap the benefits of a lower rate, lower fees or improved loan features – which can all of which will provide you with significant savings over time,” says Powell.
“Don’t think you have to stay with your current bank either. Exit charges on new loans have been banned, making refinancing easier and cheaper.
And according to the Australian Bureau of Statistics, a good number of borrowers have recently switched their loan from one lender to another. In fact, 2021 was the biggest year on record for refinancing, with $181 billion in loans refinanced during the year.
But if you haven’t refinanced your loan recently, how much could you potentially save? It all depends on your current interest rate and the fees you’re paying, but as Powell notes, the savings can be significant, especially over the term of the loan.
To illustrate the savings possible, here is a snapshot of the difference between monthly repayments and total interest on a variety of interest rates for a borrower with a $500,000 loan repaid over 20 years (with repayments capital and interest).
|Monthly repayment||Total interest|
Of course, interest rates are subject to change over a 20-year period, but the point remains the same: even a small interest rate difference can equal a large cost difference.
RELATED: Many lenders offer $3,000 cash back to refinance your home loan
Curious to see how much you could save on your own home loan by refinancing it? Let our handy Change and Savings Calculator work out the numbers for you, or start comparing a range of different offers using Mozo’s Dedicated Refinance Home Loan Comparison Chart.
* ATTENTION: This comparison rate only applies to the example or examples given. Different amounts and durations will result in different comparison rates. Costs such as withdrawal charges or prepayment charges, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed corresponds to a guaranteed loan with monthly principal and interest repayments of $150,000 over 25 years.
** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges, and therefore the total cost of the loan, may vary depending on your loan amount, loan term and your credit history. Actual repayments will depend on your personal circumstances and changes in interest rates.
^ See Mozo Experts Choice Home Loan Awards information
Mozo provides general product information. We do not take into account your personal goals, financial situation or needs and we do not recommend any particular product. You must make your own decision after reading the PDS or offering literature, or after seeking independent advice.
Although we pride ourselves on covering a wide range of products, we do not cover every product on the market. If you decide to request a product through our website, you will be dealing directly with the supplier of that product and not with Mozo.