Should I switch to a home loan with a lower interest rate?

Answer

It’s good to shop around and make sure you’re getting a competitive interest rate. All things being equal, the lower your rate the less interest you’ll pay.

But are all things equal? When it comes to interest rates, 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.

Regardless of your current interest rate, the reality is that rates will go up and down over the life of your home loan, so it’s important to consider all the features of your loan to make an informed decision.

If you’re thinking about switching home loans, some of the questions to ask are:

  • Can I open an offset account with the new loan?
  • Am I currently locked into a fixed rate?
  • Can I make extra home loan repayments to pay off my loan sooner?
  • Can I access the equity in my home with a redraw facility that allows me to withdraw any additional repayments I’ve made?
  • What fees will I pay my lender?
  • What costs will apply if I run into difficulties with my repayments?
  • What other costs will I face, such as early exit fees, break cost fees on fixed rate loans or set-up fees on the new loan?

If you switch to a loan with a lower rate, you could find yourself without the flexibility you need. Having goals and a plan is the best way to pay off your home loan sooner.

 

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Important information

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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.

This information is provided by AMP Life Limited. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice.