Switching Lenders might be easier than you think

Switching Lenders sound like a pain? It might not be as bad as you think… Here’s why.

When it comes to mortgages, most home loans are initially set up with a 30 year loan term, but the reality is that the average home loan is paid off in around 5 years. 5 Years you ask?… How can this be true?… Well the data suggests that while this is partially due to some borrowers selling their properties after short terms, in most cases this is because many home loans are re-financed during this time.

So what are the advantages of re-financing, and why would this be the case?
Historically, existing home loans statistically have higher interest rates than rates offered by the same banks for newly written home loans. Re-financing your home loan gives you access to interest rates offered by banks on new home loans.

But don’t banks want to keep their customers happy? Well in theory, yes, I’m sure they do. But consider this; CEIC reports that Australian Household debt levels reached 1,964.1 USD bn in Dec 2022. If even a 0.10% discout were to be applied across all of this lending, and ssuming a conversion rate of 1/1.5 to AUD, banks would stand to lose a combined total of over $2,900,000,000 AUD in annual interest earnings. Big right? I can’t see banks giving this kind of cheddar away for free.

So why would banks offer cheaper rates for newly introduced home loans? The answer to this question again lies in the statistics. Flash back to the start of this article. If the average home loan exists for only 5 years, this means banks would need to write the equivalent of 20% of their existing book in new loans per year, just to keep their loan book stable. That’s a lot of new loans! And with so much choice available to borrowers in Australia, our banks need to be feircely competitive in order to re-capture their market share from Australian Borrowers.

It would make sense to review your home loan every 5 years then right? We actually reccommend undertaking a home loan review every 2 years or less, but the truth is, not all borrowers are in a position to refinance due to ever-changing lending conditions, and despite the potential advantages, many borrowers hesitate to make the switch due to perceived difficulties with re-financing.

So is re-financing really that dificult?

Well it can be, and often there are hidden challenges that are hard for the average person to foresee at the start of the process. Even finding and comparing the cheapest loan products is like navigating a mine field as most banks avoid advertising their best rates to avoid upsetting their existing customers on more expensive rates. Have you ever sought help from an outgoing bank to arrange a mortgage discharge to a new bank? They don’t usually play nicely together.

But this is where your mortgage broker comes in. A good mortgage broker will be able to seek the best possible pricing from banks based on their apetitie for your level of risk and aggregate loan amount, and compare their findings with your existing loan product. After all, it’s not worth going through the full application process with a bank unless you know what you’re saving right? We then step you through the comparisons and make sure that your financial sittuation and supporting documentation meets the bank’s lending guidelines before any application is submitted to the bank. From this point, your broker will liaise with the bank on your application, arrange documents once you’re approved and manage the communication between the outgoing and oncoming bank to transfer the mortgage and settle your loan.

But what happens next?… So you’ve spoken with your broker, they’ve found you a great deal and saved you a packet of money on your loan. You’ve got new debit/credit cards and access to your shiny new online banking platform. Life continues and you’re inadvertantly saving money each month on the interest you’re saving….. Initially…. So what happens two years down the track? Should you expect your bank to call and offer you a discount because other banks are offering cheaper rates for new loans?… Fat chance!!!… But your broker will. While the banks might lose money by offering you a better deal, it costs us nothing, and by providing a great ongoing service to our clients we know they’ll stay with us for longer. If we’re lucky, they might even refer us to their friends and family.

So, if you’re overdue for a loan review, get in touch with us today and see if we can save you some money. We’ll take the work out of the process for you and keep you well informed along the way. It’s what we do. We’re bloody good at it, and we’d rather keep your hard earned money off the bank’s profit statements and in your own bank accounts.