Switching home loans

Your home loan may be your largest financial commitment. Rising or falling interest rates can have a big impact on how much you pay back each month and how much you pay in interest over the life of the loan.

By switching loans you could save yourself thousands of dollars in interest or take advantage of features offered by another loan.

But before you decide to leave your current loan, work out how much it will cost you to switch to a new home loan. Your current lender might charge you fees to exit your current loan, and a new provider might charge you fees to start a loan. Work out whether reducing your interest rate with a new loan outweighs the costs of switching from your existing one. The lower the exit and start-up fees, the more you stand to gain by switching.

If the fees are high it may not be worth switching or may be better to wait and switch later. Ask yourself: 'Is the cost of switching worth the potential interest rate saving? Use FIDO's 4 steps to answer this question.

4 steps to switching home loans
Tips for repaying household loans

4 steps to switching home loans

Step 1: Shop around
Step 2: Work out the costs of switching
Step 3: Compare interest rates, fees and features
Step 4: Ask yourself if the benefits of switching are worth the costs

Step 1: Shop around

Draw up a table listing the interest rates, fees and features of your current loan and a few other potential home loans. You might find it handy to print our checklist for choosing a home loan

to help you compare loans.

Talk to your current lender and tell them you are planning to switch to a cheaper loan offered by another lender. They may suggest an alternative loan for you at a cheaper rate or offer to reduce the interest rate in order to keep your business. If you have a variable rate loan, you can also ask them to fix some or all of the rate. This could save you significant switching costs. Include any loan they offer in your list of loans.

You can find information about different loans on offer by searching newspapers, websites of lenders, as well as the website of Cannex.

Keep in mind that a discount below the listed interest rate will often be available, so you need to speak to potential lenders to get the best deal. Hardly anybody pays the full 'standard variable rate'.

As you look at potential loans you'll find they offer a variety of loans, all with different:

interest rates
fees and charges
features.

Check out FIDO's summary of what different rates, fees and home loan features are all about.

Step 2: Work out the costs of switching

Work out what fees you will be charged if you change loans:

First, look at the exit fees on your current loan $……………..
Second, look at the start up fees on the potential loans on your list $………….

Add these two amounts together to see what it will cost you to switch.

Step 3: Compare interest rates, fees and features

Look again at your list of potential loans. Review all options available, that is, the:

interest rate
fees
features.

See just what is on offer that suits you better than your current loan.

Step 4: Ask yourself if the benefits of switching are worth the costs

You now have the facts before you.

Make your decision by comparing the costs of switching with the benefits of switching.

Tips for repaying loans

Revisit your budget	Whether you decide to switch or not, you can always investigate making additional repayments to your home loan. By making additional repayments to your lender, especially in the early period of your home loan, you can make significant savings on interest and pay off your loan quicker. Try FIDO's budget planner to see how you're spending your money and if you can afford to repay more into your home loan.
Make more frequent repayments	You also save interest by making repayments more frequently because interest is charged daily. Pay loans weekly or fortnightly rather than monthly if you can afford it. This way you make more repayments in a year than once every calendar month. Find out more about paying off your home loan faster.
Consolidate other loans	If you have more than one loan it may be cheaper for you to consolidate those loans into one. This is because you would only be paying one set of fees and you may be able to get a better interest rate. More information about consolidating debts.
Credit card debt	If you have credit card debt, consider trying to pay that off first because credit cards usually charge higher interest rates than home loans. More information about managing your credit card.
See a financial counsellor if you need help with managing your debts	If you’re struggling to repay your debts, see a free and independent financial counsellor in your State or Territory. Get a copy of ASIC’s free booklet Dealing with Debt which offers practical tips and advice for how to manage debts and deal with debt collectors.