How to get a better deal on your home loan

If you feel like you’re paying too much, there may be no time like the present to get a better deal on your home loan.

After Westpac announced its plans to lift variable rates from next month, there are fears the big banks will hike home loan rates. So, is now the best time to find a better deal on your mortgage?

TODAY spoke with Money Magazine editor Effie Zahos who answered the important questions we are all asking, and compiled some of the best options on the market.

TODAY: Effie, is now the time to refinance your home loan?

ZAHOS: From an interest rate point of view, yeah why not, it is a good time, because the RBA hasn’t changed rates for two years. But it is a blood bath our there with home loan lenders because their margins are getting smaller, so they’re changing rates for new customers, so that’s why it’s good to refinance because the new customers are getting the better deals. The difference between the cheapest mortgage and the dearest according to Canstar’s database is over two per cent. So, while it’s a good time on the interest rate side, do take care, I was speaking to a mortgage broker yesterday, it is hard to get a new loan, because the Royal Banking Commission, they’re tighter on their lending criteria. So, take care.

TODAY: Is now the time to do for a fixed or variable rate?

ZAHOS: That’s the biggest dilemma for home owners, should I lock? Shouldn’t I? Look it’s not going to be the silliest move you make if you do lock in, but nobody has a crystal ball, the thing I look at is ‘are you paying a premium now to lock in,’ and the good news is you’re not paying a premium to lock in. But do check if you’re going to lock in, can you make extra repayments during the fixed period? Is there an offset to it? If you’re about to buy a place and you see an advertised fixed rate, you can guarantee that interest rate, but you do have to pay a lock fee, so there’s a couple of things you need to consider. Or, hedge your bets. Split, fixed, and variable, but it’s not the silliest move to make right now.

TODAY: You’ve crunched the numbers and found some cheap, fixed rates for us. What’s are the best ones?

ZAHOS: I have gone to Canstar’s database and had a look to see the top three year fixed rates out there at the moment.

Easystreet financial, which is a subsidiary of Community First, does allow you to make extra repayments during the fixed period, and there’s an offset. Now if you’re with a major bank, you’ll be paying around 3.93%, that was the average we found from the big four, so you’re not paying a premium right now to lock in, because the average variable rate is about 4.5%. A lot of people worry ‘should I be with a smaller bank, or a non-bank,’ I’ve said this before, ‘I don’t care who I owe my money to, it’s where is my money kept!’

TODAY: What about variables?

ZAHOS: You won’t see the majors on this list, the average major standard variable rate Canstar had for a $400,000 loan for a bank is 4.5%, that’s a package deal, so again you can see here, if your home loan doesn’t have a ‘3’ in front of it, you’re probably getting a little bit ripped off.

TODAY: What’s the best way to switch home loans?

ZAHOS: The first thing is, ‘what am I paying?’ A lot of people don’t know what they’re paying on their home loan. What am I paying, how does it compare? Then go to your existing lender, because it is easier to say ‘hey I am paying more, this lender is offering this, give me a better deal.’ If they won’t give you a better deal, be careful, be prepared to walk and do your homework, what will it cost to move. There are costs to move, there are no exit fees, but are there valuation fees, application fees? Add up all the costs, divide it by the savings, and that will give you a break figure. If it’s like 18 months, can you guarantee your new lender is cheaper and going to be the number one all the time? The thing I do want to warn people about, property prices have fallen, if you’re a first home buyer, and you borrowed over 80%, you might find you’re locked into your lender, because you’ll have to pay lenders mortgage insurance again, and that’s the problem out there, property prices have fallen and you might find your ratio is a little too high.

TODAY: Do you predict the other big banks will lift their rates today?

ZAHOS: I don’t think they’ll follow that fast, the reason being when you look at Westpac, I know Westpac moved it, it’s a brave lender to do that, because it made a ridiculous profit, but its interest pressure margins, net interest margins are tighter. I think the other ones will hold off a little bit longer to be honest, I think it isn’t going to be fast. But look, we just saw here, there are some great deals out there, find out what you’re paying and nudge your lender to do better.

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