We’d all like to own our own home sooner, so it’s worth shopping around from time to time to make sure you’re still getting the best deal on your home loan. If you find a lower interest rate, it could be worthwhile switching, but be sure to also take into account any associated loan fees and charges.
Understanding interest rates
Not all interest rates are the same, so if you’re considering switching it’s important to make sure you’re comparing apples with apples. That’s why you should consider ‘comparison rates’, as well as all the other features of your loan.
A comparison rate includes both the interest rate and the fees and charges related to the loan in one percentage figure. This allows you to compare the true costs more easily. Your bank is required to provide a comparison rate when displaying home loan rates.
There are also different types of interest rates – such as variable rates and fixed rates. Variable rates can go up or down. While fixed rates are locked in for a period of time, meaning they won’t change during that time. Generally fixed rate loans are harder to break than variable rate loans.
But regardless of your current interest rate, the reality is that over the life of a typical 25 to 30 year home loan, rates will go up and down. So it’s important to consider all the features of your loan to make an informed decision before making a change.
What else you should consider before switching
Aside from the interest rates, there are other costs and loan features you should consider before refinancing, that is, replacing your current home loan with a new one.
- You may want a loan that offers features such as an offset account, or one that gives you the ability to make extra repayments or to redraw any extra repayments you’ve made.
- Switching home loans may involve associated costs such as break fees, early exit fees, application fees and set-up costs.
- It’s also important to understand what costs would apply if you run into difficulties making your repayments.
- Finally, before moving to a new provider, it’s worth trying to negotiate a better deal on your current loan. It helps to have done your homework before doing this - if you know what you can get elsewhere, you’re in a stronger position to negotiate.
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© AMP Life Limited. This provides general information and hasn't taken your circumstances into account. It's important to consider your particular circumstances before deciding what's right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.