Home loan switching checklist

STEP 1: WORK OUT HOW MUCH YOUR CURRENT HOME LOAN IS COSTING YOU

Interest rate

What interest rate are you paying on your home loan? How does it compare with other similar loans on the market? The interest rate charged is by far the biggest single factor in determining how much your home loan costs you in the long term.

Use PHA Services to see how the interest rate you’re paying compares with those offered by other lenders. Keep in mind that a discount will often be available below the listed interest rate, so you still need to speak to potential lenders to get the best deal.

When comparing loans, always use the comparison rate as this provides the best indication of the real cost of a loan, including not only the interest rate but also most other fees and charges.

However the comparison rate doesn't include early termination or deferred application fees. So you need to look at these separately if there is a chance you might want to end the loan early.

Ongoing fees

Typically ongoing fees (sometimes referred to as service fees) are charged monthly or annually for administering your loan. Not all lenders charge ongoing fees.

STEP 2: WORK OUT WHAT FEATURES YOU WANT FROM YOUR HOME LOAN

Repayment structure

Most lenders offer a fixed interest rate, variable rate or a combination of the two.

With a variable rate loan, the interest rate you’re charged goes up and down in response to movements in the RBA's 'cash rate' and potentially with other independent increases on the rate imposed by your lender. Advantages are:

• variable rates usually decrease if the underlying ‘cash rate’ decreases

• there are usually no restrictions on making additional repayments.

Disadvantages of a variable rate are:

• variable rates usually increase if the underlying ‘cash rate’ is increased and may also increase independently of the 'cash rate'.

A fixed rate allows you to lock in an interest rate, typically for between 1 and 5 years. Advantages of a fixed rate are:

• a way of safeguarding against future interest rate rises,

• helps you plan your finances because you know exactly how much you will be repaying.

Disadvantages of a fixed rate are:

• your interest rate is fixed if interest rates go down.

• there may be restrictions on making additional repayments

• there may be fees for terminating the fixed rate period early.

Many people look at fixing some or all of the interest rate, to give themselves certainty with their repayments and protect against future interest rate increases. If this is something you’re interested in, speak to us at PHA Services.

Extra repayments

Are you allowed to make additional repayments off your home loan?

By making additional repayments to your lender, you can save on interest and pay off your loan quicker.

Redraw

If you want future access to any additional repayments, you'll need a redraw facility.

Offset account

An account that is linked to your home loan. The balance of the offset account reduces the amount of interest payable on your loan.

Introductory rate

Some lenders offer low interest rates for an introductory period, usually 1 to 2 years (sometimes call ‘honeymoon’ rates). Be careful about these deals as they usually come with other restrictions. In particular there may be high early termination fees so you may be effectively 'locked in' to the loan even though there may be better deals available elsewhere. Know what the interest rate will be when the introductory period ends otherwise the increase in repayments may come as a nasty surprise.

Portability

What are the exit fees? Can you change home loans again easily and what costs are involved?

Direct debit repayments

Can your repayments be made via direct debit?

STEP 3: TALK TO PHA SERVICES

Check out a number of alternative loans and lenders and create a short list if it helps you to compare.

We will find out the best deal that can be offered to you. Often you can get a discount on the advertised 'standard' rate.

Remember extra features usually means higher fees, so ask yourself which features are really important to you.

STEP 4: WORK OUT HOW MUCH IT WOULD COST TO SWITCH

Weigh up the costs of switching

Before you make any decision to leave your current loan, work out how much it will cost you to switch to a new home loan. Include exit fees with your existing loan, and start-up and ongoing fees with the new one.

You will need to decide whether the reduction in interest rate with a new loan outweighs the costs of switching from your existing one. The lower the exit and start-up fees, the more you stand to gain by switching. If the fees are high it may not be worth switching or may be better to wait and switch at a later date.

Exit fees

Exit fees may also be referred to as switching fees, break fees, early termination fees, deferred application fees or discharge fees.

Much higher exit fees are sometimes charged if you switch lenders within a specified timeframe (typically 2 to 5 years from the start of the loan).

These fees can be significant, sometimes in excess of $5,000. They may be calculated as a percentage of the original amount borrowed or to equal 2 or 3 months of repayments.

Start-up fees

Check out whether there are any start-up fees with a new loan. These fees are generally referred to as application, upfront, establishment or set up fees.

Start-up fees are usually a one-off payment at commencement of your loan and vary from nothing at all to thousands of dollars.

STEP 5: DECIDE WHETHER TO SWITCH OR STAY PUT

If you’ve found a better deal and decided you’ll be better off switching, you’re ready to make the switch to the new home loan.

STEP 6: MAKE THE CALL

Pick up the phone and call PHA Services on 0438 565 911