To switch lenders or not - that is the question. It's one which has confounded borrowers since the time of the bard (well, almost). The primary attraction of switching is obvious – a chance to save on your monthly outgoings or plough the extra cash into paying off your home loan early. The reality is that you have to research this area very thoroughly to have any hope of realising any savings. Even though new legislation aimed at enabling switching will soon eliminate exit fees, there are a whole raft of other costs associated with setting up a new home loan.
From 1 July 2011, lenders are also not allowed to charge any exit fees on new home loans. This is not to say that they cannot levy other charges on your existing home loan. In fact this is what you need to identify in any policy document – the dreaded small print. Some common charges associated with home loans include:
- Lenders mortgage insurance
It is worth knowing that from 1 January 2012, credit providers are obliged by law to provide you with a key facts sheet, if requested. This sets out all the key information about your home loan and is designed to make comparing loans, and therefore switching a lot easier.
Before You Switch
Before switching it is worth calculating that any savings will be recouped within a reasonable timeframe - ideally within six to twelve months. Otherwise ensure you:
- Shop around and see what other credit providers are offering.
- Do the math and make sure any savings are worth the effort of switching.
- Approach your bank and see if they are willing to negotiate a better rate on your existing loan.