Switching Home Loans from One Bank to Another: How and Why?
Switching home loans has become a popular option for homeowners in Australia, especially when better interest rates, loan terms, and additional benefits are available. Savvy homeowners with a mortgage are seeking out better deals with rising interest rates putting pressure on all facets of life. Some people find they can negotiate a better deal with their current lender and others find other lenders to have a better deal for their current circumstances.
This article will show you how Brisbane homeowners can transfer mortgages to another bank from their original lender. It will also give you an overview of the steps to do this.
By understanding the process and advantages of such a move, you can decide for yourself whether this is something you can do for your own refinancing plans or if you’re better off with your current one.
Understanding Refinancing and Transferring Home Loans
Before delving into the process of transferring home loans from one bank to another, let’s first have a clear understanding of how refinancing works. As a homeowner, you have the option to refinance your existing loan to a fresh one. This option is chosen by many individuals for various reasons.
For starters, refinancing allows borrowers to take advantage of more favourable interest rates and loan terms that may not have been available when they first obtained their home loan. By refinancing, homeowners can secure a lower interest rate, which can result in significant cost savings over the life of the loan.
Refinancing also offers borrowers the chance to access additional features and benefits that their current loan may not provide. Innovative features like offset accounts and flexible repayment options can be added to a home loan when it’s refinanced.
If there are features that you want to get with a refinance, but your current lender doesn’t offer them, this is when you can contemplate a transfer home loan from one bank to another.
Is Refinancing a Good Idea These Days?
With the successive RBA cash rate hikes, many Aussie households are feeling the pinch of increasing monthly mortgage repayments. At least 300,000 households may currently be experiencing negative cash flow right now, not to mention the $141 billion wave of fixed-rate home loans set to expire this year.
With mortgage repayments and essential living expenses coming together to exceed household disposable income, the recent boom in home loan refinance activity is somewhat expected. A lot of people are taking advantage of the competitive rates for loan refinancing these days to help alleviate some of the financial burdens they’re feeling right now.
According to an index from the online property exchange PEXA, the number of loans being refinanced as of 7 March of 2023 was up by a whopping 67.5% compared to the same time period in 2021. This indicates that a lot of people have turned to refinancing for one reason or another this year.
While there is no hard rule when it comes to when refinancing your home loan is ideal, we at North Brisbane Home Loans encourage homeowners to take advantage of the current strong competition between lenders for customers.
This competition can result in banks offering discounted interest rates and even cashbacks on the table at times to win your business. The mass exodus of homeowners with expiring fixed rate terms is also encouraging banks to compete aggressively for customers. This can make refinancing a viable option for those looking to save on their mortgage repayments.
Refinancing can be a good idea if you can get your hands on lower interest rates for your new loan. This can help you save money on your monthly mortgage repayments over the long term.
It can also be a way to change your home loans from a variable interest rate to a fixed interest rate loan or vice versa. Such a move can offer greater certainty and stability in your mortgage repayments.Unsure of whether to refinance or not? Talk to North Brisbane mortgage brokers to get some guidance around this financial commitment.
Reasons for Switching Home Loans and Refinancing
Why do people switch their old home loans to newer ones? Here are some of those reasons:
Lower interest rates and better loan terms
The most common reason homeowners switch their home loans is to secure a lower interest rate or more favourable loan terms. In a competitive market, lenders often introduce attractive offers to attract new customers. By switching to a lender offering lower interest rates or reduced fees, borrowers can potentially save a significant amount of money over the life of their loan.
Access to additional features and benefits
Another motivating factor for switching home loans from one bank to another is the opportunity to access additional features and benefits. As mentioned earlier, lenders may offer perks such as offset accounts, flexible repayment options, or the ability to redraw additional payments. Switching to a loan with enhanced features can provide borrowers with greater financial flexibility and convenience.
Dissatisfaction with current lender’s service
Poor customer service or unsatisfactory experiences with the current lender can prompt homeowners to explore alternative options. Switching to an option with a better reputation for customer service and responsiveness can improve the overall borrowing experience.
Changing financial circumstances
Changes in financial circumstances, such as a decrease in income or an increase in interest rates, can induce borrowers to reassess their home loans. Switching to a new loan that aligns with the changed circumstances can result in better financial outcomes.
Debt consolidation and refinancing opportunities
Homeowners may also choose to switch their home loans for debt consolidation purposes. By refinancing and consolidating high-interest debts into a single home loan, borrowers can simplify their finances and potentially reduce their overall interest payments.
Transfer Home Loan to Another Bank: Steps to Follow
When you decide to refinance or switch home loans, there are a few steps to follow that will allow you to transition smoothly from your old loan to a new one. Here are those steps:
Research and compare available loan options
Begin this journey by researching and comparing loan options from various lenders. Online platforms, comparison websites, and professional advice can assist you in doing this, but one option you should consider for this is a mortgage broker you can trust.
Assess the costs and fees involved with switching
There may be costs and fees associated with switching home loans. These can include exit fees from the current lender, application fees from the new lender, and potential valuation fees. Evaluate whether the potential savings you get from switching outweigh these costs.
Consider the eligibility criteria and loan requirements of the new lender
Find out what makes a homeowner eligible for these new loans and the loan requirements these lenders have before applying. This can help ensure that you meet the necessary conditions for this new loan.
Prepare the necessary documentation
Collate all documentation needed for the loan application. This can include proof of identity, income verification, employment details, and property valuation reports.
Apply for the new home loan
Submit the loan application along with the necessary documentation. Communicate with the lender regularly throughout this process so you can address any queries or concerns promptly.
Complete the settlement process
Once the loan application is approved, the settlement process begins. This involves legally switching home loans from one bank to another or from your old lender to the new one. Work closely with both parties and engage the services of a conveyancer or solicitor to ensure a smooth transition.
Notify the previous lender and transfer the mortgage
After settlement, notify the previous lender of the switch and provide instructions for transferring the mortgage. Ensure any direct debits or automatic payments are redirected to the new lender to avoid any disruptions in loan repayments.
How much can I potentially save by switching home loans?
Before jumping from one bank to the other, it’s important that you weigh the costs associated with changing mortgage providers against the savings you will get. This is to determine if switching is the right move for you.
Here’s an example:
An owner-occupier with 80% LVR on a $400,000 home loan and an interest rate of 6.39% (a typical home loan interest rate in July 2023) undertakes a refinancing home loan with a 5.84% pa variable rate. Over the life of a 30-year loan, they could wipe about $142 in savings each month off their mortgage repayments, with the assumption that rates remain the same for the entire duration of the loan. If you do not know what rate you have on your home loan – and have not had it re-priced or reviewed over the past 12 months then it is very likely to be too high.
Can a Mortgage Broker Help Me Transfer My Mortgage to Another Bank?
Yes, a mortgage broker can be immensely helpful in facilitating the transfer of a mortgage to another bank or lender. The mortgage brokers here at NBHL are licensed professionals who act as intermediaries between borrowers and lenders. They can offer expert advice and assistance throughout the refinancing and home loan journey.
When it comes to transferring a mortgage, your NBHL broker can play a crucial role in several ways.
- They have access to a wide range of loan products from various lenders, allowing them to compare and identify the most suitable options for the borrower’s specific needs.
- By leveraging their industry knowledge, brokers can negotiate on behalf of the borrower, seeking better interest rates, reduced fees, and improved loan terms from the new lender.
- They can handle the paperwork, liaise with both the existing and new lenders, and guide you through the entire transfer process, ensuring a smooth and efficient transition.
Enlisting the services of an NBHL mortgage broker can help streamline the mortgage transfer process and increase the likelihood of finding a favourable loan arrangement with another bank or lender.
Important Tips to Remember Before Switching Home Loans
A better interest rate and savings are certainly great reasons for you to review your home loan. There are a few things, however, that you should consider doing before concluding such a transaction.
Do a mortgage “health check”
A home loan health check helps you assess your current loan and determine if switching home loans is a good option for you. This involves reviewing your current home loan, including the interest rate, fees, and features, and then comparing it to other loans on the market.
A mortgage health check by an expert mortgage broker can also show you the costs associated with refinancing. These include application fees, valuation fees, and legal fees. These can vary from lender to lender and from loan type to loan type. Such knowledge can help you determine if the potential savings from refinancing outweigh the upfront costs.
Doing this can also help you identify any potential issues that may prevent you from refinancing, such as a low credit score or a high debt-to-income ratio.
Ask your current lender for a better deal
Inform your current lender that you want to review your home loan. Mention that you might consider switching banks to get a better deal. Some lenders may offer reduced interest rates on an existing loan to keep your business. If this is appealing to you, ask your mortgage broker to liaise with your lender on your behalf.
Calculate the cost of lender’s mortgage insurance (LMI)
For homeowners with less than 20% equity in their home, you may have to pay lender’s mortgage insurance (LMI). This can increase the cost of switching home loans and outweigh the savings you may get from securing a lower interest rate.
A mortgage broker experienced in refinancing can assess your current home loan and let you know if LMI will apply to the new loan.
Final Word on Switching Home Loans from One Bank to Another
So, is switching home loans a valuable opportunity for homeowners? That depends. You can achieve better financial outcomes and get favourable terms as well as features added to a refinanced home loan if you understand the process and know what to do.
Exploring alternative loan options and considering individual circumstances will open you up to these opportunities and can help you make informed decisions when it comes to your mortgage. What you ultimately decide may lead to cost savings and enhanced loan features.
While there are potential challenges, costs, and considerations associated with this move, these can be minimised. With careful planning, professional advice, and clear communication with lenders, a smooth and successful home loan switch can occur.Want to learn more? Contact us today, and we can help you decide if switching home loans is a good step for you to take.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
