Switching home loans
Making the switch
Switching home loans could potentially save you thousands of
dollars in interest or let you take advantage of features offered
by another loan. Do your sums and work out if the benefits of
switching are worth the costs.
See what loans are available from different credit providers. A
comparison website will give
you an idea of what different lenders are offering, or you may
choose to use a mortgage broker to help you choose a
Ask your lender for a key facts sheet
When you find some loans that offer the features you want, ask
the lender for a key fact sheet on each loan to compare features.
Credit providers have to give you a key facts sheet on home loans,
if you ask for one.
Key facts sheets give you the information you need in a set
format, so it is easier for you to shop around and compare loans.
They highlight important information such as the total amount to be
paid back over the life of the loan.
Here are some example key facts sheets:
Ask your current lender to do better
Tell your current credit provider you are planning to switch to
a cheaper loan offered by another lender. They may suggest an
alternative loan at a cheaper rate, or offer to reduce the interest rate on your current loan to
keep your business. Compare any loan they offer with other loans
you are considering.
Keep in mind that a discount below the listed interest rate will
often be available, so speak to potential lenders to get the best
See choosing a home loan for more
details on what to look out for.
Be wary of companies that offer loans that claim to pay off your
mortgage faster. The only way you can do this is by increasing your
repayments or finding a loan that has low fees and a low interest
Compare interest rates, fees
Once you have a short list of potential loans, draw up a table
to compare the interest rates, fees and repayment amounts of each
loan. Use our checklist for choosing a
home loan to help you.
Work out whether you will save money by switching to another
Also see interest rates and fees for more
Make sure you check the loan features to ensure you are getting
the features you want and not paying for the ones you don't
Work out the costs of
Exit fees, break fees and start-up fees
Lenders are not allowed to charge exit fees on loans taken out
after 30 June 2011. If you took out a home loan before 1 July 2011,
find out if your lender charges exit fees on your loan.
If you are on a fixed rate loan, you may need to pay a break
fee. You should also check the start-up fees on a new loan. Find
out more about fees.
Lender's mortgage insurance
Lenders' mortgage insurance (LMI) is a type of insurance that
credit providers take out to protect themselves from borrowers not
being able to repay the loan. If you paid lender's mortgage
insurance on your current loan, find out if you have sufficient
equity in your home to avoid paying LMI again.
If your loan is more than 80% of the current value of your home,
you may have to pay LMI again with a new lender, especially if you
are increasing your loan amount. This can greatly increase the cost
of switching loans.
However, if you switch loans within the first year or two you
may get a refund of some of the LMI premium you paid on your
Find out more about lenders' mortgage insurance on our home loan fees
page or read the LMI fact sheet on the Insurance Council of
Length of the new loan
Some lenders only allow you to refinance with a loan of 25 or 30
years rather than the number of years you have left to pay off your
current loan. This means that if you take on the new loan your
repayments will drop, but if you only pay the minimum in repayments
it will take you 25 or 30 more years to pay off the loan.
If this is the case, think about increasing your repayments for
the new loan, so you can still pay it off in a reasonable amount of
time. You don't want to still be paying off your home in your
retirement just because you switched your home loan.
Case study: Peter and Amy consider changing loans
Peter and Amy think they are paying too much for their home loan
and decide to look around for a better deal. After visiting a
comparison site, they pick two loans that charge a lower interest
rate than their current loan.
Loan A has an establishment fee of $600 and Loan B has an
establishment fee of $300. Peter and Amy pick Loan A as it has the
lowest interest rate and they think it will be worth paying the
establishment fee in the long run. Overall they will pay less
interest on their new loan.
Other ways to reduce your home
There are other ways to reduce your home loan debt apart from
- Make additional repayments - this will save you interest and
help you pay off your loan quicker. See making repayments.
- Make more frequent repayments - pay loans back weekly or
fortnightly at a slightly higher rate (e.g. 5-10% more) rather than
just making the standard monthly payment.
- Consolidate multiple loans - you will save money by paying only
one set of fees and you may be able to get a better interest rate.
See consolidating and
If you're struggling with repayments, see problems paying your
Switching home loans can save you money, but
always check that the benefits, such as interest rate savings, are
worth the fees you'll be charged for leaving one loan and taking up
Last updated: 26 Sep 2018