Changing home loan - how difficult?

Russ on 28/04/2014 - 21:14
Last edited 28/04/2014 - 23:16

I am planning on buying a second home, and am currently looking around at home loan interest rates.

There seems to be an anomaly in the market at the moment, as some lenders have fixed rates (1-3 years) that are lower than their variable rates, unless I am misunderstanding the financial information. The fixed rates look really good (<5%), but the lenders with good fixed rates have not-very-good variable rates (at the moment), and that will probably still be true after the fixed-rate period expires.

So it looks like my best strategy is to go with a fixed loan until the fixed-rate period expires, and then look at the market again and maybe change to a different lender.

Problem is, I don't know how difficult it is to change lenders, so hopefully someone here can share their experiences. How difficult was it, and what were the charges? Any pitfalls to avoid?

Edit - another question: if you have done this, did the new lender pay out the old lender's exit/closure fee?

Financial

Comments

  • Hotpotcorn on 28/04/2014 - 21:47

    I'm having difficulties paying off my first house mortgage :(

    • Russ on 28/04/2014 - 22:23

      Well, if it turns out to be easy to change, refinancing might make it easier to pay off. Currently Loans.com.au have a "Hot Summer Rate" deal, offering 4.51% comparison rate for variable: http://betterbanking.choice.com.au/home-loans/information/lo…

      I was just chatting online with them, and the salesperson thinks that offer is likely to continue, at least until the next RBA meeting, on the first Tuesday of next month.

  • Devils Advocate on 28/04/2014 - 21:51
    +2

    Yes, fixed rate loans will generally have a lower rate than variable rate loans, unless economic forecasts predict a rise in interest rates within the period that you are looking to fix. Currently most economists believe that the cash rate will remain unchanged for 2014, so short-term fixed rates are currently offering lower rates.

    However, variable loans have more flexibility and can take advantage of offset accounts and other features which often save more money in the long run than a slightly lower interest rate.

    In regards to your question of how difficult it is to switch between lenders I'm not much help, having never done it before.

  • Russ on 28/04/2014 - 22:16

    I agree with you, I just thought that the fixed and variable rates would become equal if the cash rate is steady for the forseeable future. That the fixed rate is lower makes me wonder if the banks think the variable rate will drop in the near future.

  • Cheshire Cat on 28/04/2014 - 22:54
    +1

    Done it a few times. It's fairly simple, you do need to do the maths though as there's always some fees floating around somewhere (which is why the comparison is rarely the same as the variable rate).

    As long as you are confident you have the capacity to pay and the equity in your home it's really not that hard and looking to get a second and increase your borrowing total will normally get you a bigger discount.

    • Russ on 28/04/2014 - 22:58

      How long did the changeover take, and did the new lender require all the docs that are normally requested when setting up a loan from scratch (like proof of income, list of existing debts, etcetera)?

      • Geewhizz on 29/04/2014 - 07:29

        They would do: they're providing you with finance, just as your original lender did.

        • Russ on 29/04/2014 - 22:30

          True, but as you have typically paid off some of the capital, I thought they might be more relaxed about it. As an example, if your house is valued at 500k and you only owe 200k, they might not care, knowing that you can default for a year and they will still get their money back.

        • Cheshire Cat on 29/04/2014 - 23:20
          +1

          It's a brand new loan to them. Only place I haven't seen them ask for much information was refinancing or taking out an extra loan with the same lender…and they only don't ask for some things (like your income if it already goes into an account with them) because they already have that information.

          The changeover doesn't take long…just depends how long you take to get the documents together. Was about two weeks from initial application discussion iirc.

      • ShannonIngram on 01/05/2014 - 20:35
        +1

        Mortgage broker here. Typically documentation wise you'll have to provide at a minimum ID, proof of income amd 6 months statements on the debts being refinanced. They'll also still need to see you can afford the loan as they have responsible lending obligations under the NCCP act and can't waive them even if you have stacks of equity in the property.

        Some lenders use a process called fast refi which means you can settle in a couple of weeks but typically I would allow up to 3-4 weeks for a refinance to go through (your existing lender will drag their heels for a couple of weeks in preparing the discharge of your existing mortgage).

  • eatwell365 on 29/04/2014 - 05:13

    A fingertip away. Mortgage consultants will knock knock your door.
    "At Ozzie, we'll save you."
    Paperwork + Valuation. Done many times.

    • Russ on 29/04/2014 - 23:57

      I might give them a go. Were they pushy at all? They come across to me to be a bit like door-to-door salesmen.

  • wei13 on 30/04/2014 - 09:24
    +1

    i have held only ever held two properties. I have changed loans both within banks, and between banks.

    as long as you can service the loans (ie steady job), it is not hard to just reapply for another fixed rate loan after the fixed-period ends, either with the same bank, or with another bank.

    with me i was lucky to have found a good mortgage broker. with a good broker most of the time consuming work is done by them.

    as noted above there will always be fees here and here, my experiences are around $1000 - $1500. a good broker will be able to advise you of the approximate fees you are looking at for each change.

    • Russ on 04/05/2014 - 21:28

      Thanks, that's exactly the sort of information I was hoping to get.

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