By simply shopping around for a good mortgage deal, homeowners can save almost $5,000 a year on a $500,000 loan, new research shows.
Interest rates are currently at the lowest level in 50 years, and while they are likely to stay on hold in the short term, there is speculation that the RBA could raise the cash rate from early next year.
But just because cash rates are low, doesn’t mean you can’t save even more on your mortgage. Research by Swinburne University Economics Professor Abbas Valadkhani has found that banks are often less competitive than other lenders, and building societies can offer more competitive rates.
Here’s how to change and save.
Picking a lender
The study found that since 2008, the most competitive home loan lenders include Bankwest, Aussie Home Loans and Adelaide Bank.
Banks which charged the highest markup on the standard variable rate and were deemed the least competitive home loan lenders, include ANZ and Citibank.
“Anyone with a good mind should not go to these lenders,” Professor Valadkhani says.
Professor Valadkhani says that home owners with a $500,000 mortgage could save $400 a month by going with the most competitive lender in his study, rather than the least competitive.
Mortgage Choice spokesperson, Jessica Darnbrough, also advises that home buyers should consider smaller lenders.
“Some of the credit unions, especially in Australia, are being very competitive of late, along with our second tier lenders, or our non-major lenders, like Citibank and St George,” Ms Darnbrough says.
Picking the right type of loan for you is crucial, with the experts offering conflicting advice.
Professor Valadkhani says to be mindful of the terms and conditions on promotional rates.
“You need to make sure the rate that they offer you is not a honeymoon rate or is only for one year. It could only be a little footnote in your contract, and then after one year it reverts back to another rate,” he says.
“The best advice is just to go and compare and contrast the comparable rates, not the honeymoon rates. Stay away from those short-term deals. They’re not going to last forever.”
But Mortgage Choice’s Ms Darnbrough says punters can get a good deal on promotional rates if they do their research.
“Barely anybody actually takes out a basic or standard variable rate these days because there are some really exciting discounts being applied by lenders,” she says.
What if I already have a mortgage?
Home Loan Experts managing director Otto Dargan, says that one of the biggest ways to save on your loan is to review your mortgage every couple of years.
“Banks don’t automatically give you the new lower pricing that they give to their new customers,”Mr Dargan says.
“You have to review your home loan every couple of years and push them to reduce the rate or threaten to leave.”
Professor Valadkhani says that the cost of refinancing is worth it.
“You’ll be amazed. The moment you talk about switching, they may match the rate that someone else is offering without even switching,” he says.
“If your mortgage is significant, more than $200,000 to $300,000, even if you are in the middle of your mortgage, you will be much better off to switch to another lender.”
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