Save cash with a cheaper loan

COMPLACENT mortgage customers who fail to switch lenders could be cheating themselves out of significant savings by paying a much higher interest rate than needed.

Despite the cash rate staying idle at a record low of 1.5 per cent since August last year, during this time the number of borrowers refinancing their home loan has fallen, Mortgage Choice figures have revealed.

According to their database, in July 2016 about 40 per cent of customers refinanced their loans, compared to just 34 per cent now.

Financial institutions have continued to push up home loan interest rates in recent months across all loan types, and Mortgage Choice chief executive officer John Flavell warned that a “set and forget attitude” could be costly.

“This attitude often causes borrowers to pay more than they should and in some instances miss out on a better deal which could save them thousands of dollars,’’ he said.

“Rates are very competitive on owner-occupied principal and interest loans but have been increasing on interest-only investment loans.

“These changes can make a large difference to what a borrower has to pay each month, which is why they should be checking their home loan on a regular basis.”

Data from financial comparison website Canstar found that the average owneroccupier principal and interest variable rate is 4.47 per cent, while the average investor interest-only variable rate is 5.13 per cent. Customers who do wish to refinance must be aware of fees and charges that apply, including break costs too, if they are terminating a fixedloan period prematurely.

But one of the nation’s largest lenders, ING, said it has noticed a tripling of owneroccupier refinancing since 2015.

Data compiled by the lender showed customers who refinanced in the last two years saved an average of about $1070 per year.

The bank’s head of products, Tim Newman, said while refinancing can be costly, it can save a customer thousands of dollars in interest and fees over the life of the loan.

“Make sure the lower interest rate being offered is for the life of the mortgage and not just a honeymoon rate that reverts to a higher than normal rate after a certain period,’’ he said.

“Using comparison rates to compare different mortgages can help, because the comparison rate will take into consideration other costs associated with the mortgage, such as regular fees, and not just the interest rate.”