Banks are always keen to poach mortgage clients from each other, so they offer discounted rates and cash backs to entice you to switch. However, switching mortgage providers can be an expensive and time-consuming process. Make sure you have a good reason to do it.
The main reasons to consider moving your banking relationship are:
- If you have multiple debts and want to consolidate these into a single affordable loan. Remember though that converting a short-term loan into a long-term mortgage will likely end up being costlier in the long run as you’ll pay more interest over the term of the home loan.
Not satisfied with current bank:
- If you’re not happy with the services offered by your current bank.
- Or you wish to switch because another bank has a more convenient location (particularly relevant in rural areas).
There are better interest rates out there:
- If other banks are offering better interest rates compared to your existing bank. In a case like this, work out the difference between the cost you’ll incur for switching the loan and the benefit you’ll get from lower interest rates. Only after this analysis should you switch banks and rates.
To release equity:
- You want to access some of the equity you’ve built up in your existing property to release funds for other purposes (home renovation, a holiday or the purchase of a car or investment property).
- Keep in mind that if you get a personal or car loan it may be more expensive in the short term, but the total interest cost over the loan term will be less as compared to the refinance lending.
There’s been an improvement in your personal or financial circumstances:
- If you’ve progressed in your career or your family is expanding since you last applied for a loan it may be worth looking at switching banks to take advantage of new loan offers.
- Or your house has appreciated in value, and new interest rates are lower than what you’ve been paying. Again, factor in the fee you’ll pay for breaking a fixed rate loan.