Hi Peep
I have been on the same home loan for over a year and I am looking at refinancing and saw nab offering $1800 in gift cards and bank of Melbourne with their $1500 cash back.
This made me wonder if anyone had been changing home loans every 3-4 months to take advantage of these promos?
Currently I am with ing orange advantage with off set variable account. What would you say is a good home loan to change to ?
Thanks
Exit fees, higher rates, credit history…
A new enquiry on your credit file each year for a large amount means you will not succeed for long. Banks may think you are in financial trouble and therefore keep switching lenders
Meh. My keen to hear feedback from a broker in your comment.
Spot on
Many hits in a short time is not a good thing
Don't need a broker to tell you this, common sense is enough
Yeah, but it's not the same as a credit card.
You don't refinance a home loan when you are running out of money. You refinance to get better rate.
A home loan inquiry (should) be viewed differently from a credit card inquiry, especially if you have an existing loan. I realise that if you have home loan inquiries and no current loan, that could be viewed negatively, because that is a signal that the lender believes you cannot pay, but transferring a balance to another lender does not increase risk.
I believe credit reports do not show if a balance is being transferred from an existing home unless the back further investigate they might just assume that you are in financial trouble.
It will not show the history, but if you have an existing loan, they know you are doing it just to transfer a balance.
Why would it show you are in financial trouble?
Yes, I understand that lots of credit card inquiries could indicate someone is out of money and may default soon. But who changes home loans when they are in financial trouble ( and I mean serious trouble, i.e. close to default, not just someone that would maybe be spending a bit too much and not have their finances completely in order)? None. What is the inncentive for the bad credit to move lenders and default? Why wouldn't they just stay with the current lender and let them take the loss.
You refinance a home loan because you want a better rate. That is a signal of financial responsibility and someone more likely to pay.
I don't have any experience with the credit reporting agency scoring models, but I would hope that it would treat home loan refinance as a positive, or at least not a negative.
@random12: it's about your risk profile for the bank. Refinancing often puts you in high risk category.
I would think inquiries to change home loans should be good, or definately viewed better than inquiries for credit cards.
It shows that you actually have the sense to get a good deal, and you don't just stay with the one place. Also, if you have the strength to refinance regularly, that means that lots of lenders trust your credit worthiness.
OP speaking as credit advisers (mortgage brokers) we can say the following factors are ones you will need to be mindful of:
1. How high your credit score is going into this strategy. If you are at the top of the high band for all the credit reporting authorities then this strategy may not be fatal to your chances of getting approved for credit in future. That said, doing what you are proposing is overwhelmingly likely to make a significant downwards impact on your score if done 2+ times in a year ceteris paribus. So, in short, be mindful that your score will drop - if you have a high score, this may not be of huge concern to you - if you have a moderate (or lower score) this could pose issues for you.
2. Reward for effort. There will likely be costs of exit, possibly establishment costs and the inevitable messing about with paperwork. In our experience, a typical refinance costs most people ~$1000 in direct costs. Once you allow for the time expended plus the opportunity for things to go wrong (and take further time/cost rectify) this strategy may show only limited opportunities for reward compared to competing alternative uses of your time and energies.
3. Possibility for short-term gain at the expense of longer term pain. Why? Many lenders we deal with are wising up to customers trying to game their systems (points/rebates/rewards) - so you risk getting blackballed (in some cases for life). Also, we have seen people with grey territory credit profiles rejected due to a history of repeated applications in the past 5 years (because this sends two clear signals in their eyes: 1. The applicant is relatively high risk 2. It is not worth showing any leniency on a credit assessment for a person that is likely to be a low value/flighty borrower). None of this may concern you depending on your long term goals, but if your loan term goals include maximising your borrowing capacity, avoiding LMI or starting a business these can be factors that will work against achieving those ends.
Hope this helps.
Thanks for the very comprehensive explanation.
I'd be checking the exit fees in your contract. Generally the handouts/cashbacks is to cover the anticipated fees you'd pay to get your business.
But you may have found a loophole. Once a year for 30 years = $45k - $54k