How to change your home loan

Are household expenses in retirement starting to get you down, but are unsure how they can be reduced? Is scrimping and saving not working?

Recent research by Monash University shows that it is the big items that you need to tackle first. So reducing your home loan is probably where you’ll make the most headway most quickly. Today we tackle the five steps involved in refinancing your home.

1. What do you hope to achieve by switching mortgage lender?
The first step is to work out exactly what it is about your current mortgage arrangement that is making you unhappy. Is it the interest rate that your provider charges? Or is it another aspect, such as the fees, the loan term length, or the service that you receive? Once you have identified the reasons, then it is important to consider whether they are significant enough to warrant the work involved in refinancing.

2. Fully understand your current mortgage
Having worked out why you wish to change your home loan, the next step is to make sure that you fully comprehend your current loan. This second step is probably the most critical of all. If you don’t fully understand your current arrangement then you’ll have little hope of being able to compare it to a new mortgage offer. Also, it may be that you don’t have to change mortgage lender to get a better deal, you may just have to make more of the benefits of your current home loan.

Understanding your current mortgage arrangement means being aware of, and making sense of, all the terms and conditions attached to the loan. If you don’t have a current statement, contact your lender for a copy (note – there may be a cost involved). Then take the time to sit down and write down, in your own words: the amount owing, the interest rate that you pay, the anticipated final payment date, and the total amount of interest that you’ll pay. It’s also very useful to consider the current valuation of your property and your total debt. Does this scare you? Could you get a better deal elsewhere?

3. Compare
Fortunately, online tools have made comparing home loans incredibly quick and straightforward. One such online comparison website is RateCity. Using its search function you can browse the different home loan options, narrow them down to the best few, and then compare the key aspects of these loans. The search will advise, and compare, the following information:

  • type of home loan
  • advertised rate
  • comparison rate
  • monthly repayment
  • estimated up front fees.

If you would like further information about a specific loan, RateCity will link you to the relevant website. And there is the very handy feature that allows you to see a graph comparing a selected home loan with those from any of the big four banks.

One really important aspect to factor in to your considerations is the various costs involved with changing home loans. These usually include both charges from your current provider (e.g. an early exit fee, a break cost) and your new provider (e.g. application fees, new account fees). As these costs can add up to a few thousand dollars in some cases, it’s crucial that you are aware of all the possible fees before you undertake the process of switching loans.

4. Get your paperwork and financials organised
Once you have made the decision to change your mortgage, you will have to get all the relevant paperwork in order. Make sure that you have your statements, details of investments, income and expenditure together. You’ll also need to have information on your credit history. It’s important to check your credit rating plus any credit card limits, as the latter will be counted as debt by the bank. You may wish to think about reducing your debt, even slightly, before switching home loans.

5. Broker or bank?
The last thing to consider is how you will organise your new mortgage – whether you will use a broker or deal directly with the bank. This will most likely depend upon your employment/ retirement status and financial situation. Using a broker, such as Aussie or Mortgage Choice, can make the process simpler. Brokers will generally have a broad knowledge of which banks are most likely to offer a loan based on your particular situation. Brokers can also suggest the best way to compile your information so that no time is wasted by a lender requesting further details. However, if you are confident that you have chosen the best option, then going direct to the bank, usually via a specialised mortgage officer, may be your preferred course of action.

Whether or not you decide that moving home lender, or changing your mortgage, is beneficial, reviewing and comparing your current arrangement is often a worthwhile experience. If you do choose to change your home loan, it is crucial to make sure that you will receive a better deal and save by switching.

All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances. 

Written by YourLifeChoices Writers

YourLifeChoices' team of writers specialise in content that helps Australian over-50s make better decisions about wealth, health, travel and life. It's all in the name. For 22 years, we've been helping older Australians live their best lives.

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