Why Don't We Get the Best Deal on Our Home Loan?

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Australia's home loan market is more competitive today than ever before, and yet thousands of Australians have been in the same loan for years on end without ever comparing their current loan with other products. If a petrol station down the road from our usual place of purchase has fuel 0.05c cheaper would we hesitate to switch fuel suppliers? Probably not, but then purchasing petrol is not the same as switching our home loan.

So what is it that keeps us with a lender when there are obviously cheaper products available?Some of the reasons could be:
- Our home is usually our biggest asset and our home loan our biggest liability, so although we may know that we can get a better deal, emotionally we fear change
- It is surprising how often we obtain our original loan through the lender "we have always been with" or "my family has always banked there" or "my sister/auntie/friend worked there" and in the absence of a known contact with a particular lender we may not feel capable or knowledgeable enough to make an informed decision
- Refinancing your home loan incurs costs, so any savings made may be eaten up in changeover costs
- We may know that we can & should source a better deal, but that requires paperwork and time and we never seem to get around to it

So what are the potential benefits of finding a cheaper home loan?

The Smiths currently owe $250,000 on their home loan at 7.74% interest; they repay $1,912.77 per month to their loan. It will take 24 years to pay off and cost $300,876.81 in interest.

The Smiths shop around and find a loan at 7.44% interest. It will cost them $2,000 to change to the new loan. If they maintain payments of $1,912.77 per month, they will pay off their loan in 22 years and 11 months and pay $273,263.56 in interest.

So a rate change of 0.30% has saved $27,604.25 in interest after changeover costs and the Smiths own their home almost two years sooner without increasing their repayments.

A 0.3% saving on interest rate is not unusual, in fact it is quite common to achieve a 0.5% saving or above.If our home is our largest asset and our home loan our biggest lability, security lies in increasing the equity we own in our home as quickly as possible.

In other words, the quicker we pay off our loan the better off we are.

The less we pay in interest, the more principle we reduce.

If we use a Mortgage Broker that has access to multiple lenders we have a greater choice of products than dealing with a single lender. In NSW it is illegal for a Mortgage Broker to refinance you into a loan that has no advantage over your old loan. This process is known as "churning" and incurs severe penalties for any broker who engages in this dishonest practice. Using a broker who is an MFAA member should ensure that the broker adheres to a high standard. Making sure the broker is a member of the Credit Ombudsman Service Limited gives you an easy avenue of complaint if you do not believe you have been treated fairly in your dealings.

The cost of changing a loan should always be weighed up against the benefit. In this common sense should prevail. If it costs $1,500 to save $30,000 we don't need to be Einstein to perceive the benefit. If however it will cost us $3,000 to save $4,000 it is probably not worth the time and effort to change. Make sure your broker clearly explains what your costs and benefits will be.

Mortgage Brokers are paid by the lenders for introducing loans, most brokers visit you in your home, fill out the application for you and generally make the process as easy for you as possible. After all the broker doesn't get paid if the loan doesn't go through.

Most Mortgage Brokers are happy to meet with you to review your debt portfolio and can tell you within an hour if there is a benefit for you in refinancing. If there is sufficient benefit, refinance, if not stay where you are.

The only thing you can lose is years off your mortgage!

For more information please contact www.touchstonefinancial.com.au . The home loan specialists