Recent Federal Government legislation should now ensure that the cost of moving banks is relatively cost free and unrestrictive. The guidelines have removed the banks right to hold a borrower with unjustified and high discharge fees. You may incur some small legal and transfer fees of approximately $300 when moving banks. Gone are the days of 1.5% fee of the loan amount for an early release of security!
You should always be open and honest with the banking institution you have chosen and form a direct relationship with a local Bank Manager; this will ensure an easier path to understanding the bank procedures and processes.
Your broker should be providing you with different bank alternatives as they arise and reviewing your mortgage every six months or when your personal /family situation changes. They should also have a thorough understanding of all the different types of loans including Reverse Mortgages and Self-Managed Superannuation Loan facilities.
Be aware of your current interest rates and review them against the rates advertised in the paper or on the net, this will give you a good indication of how competitive your rate is against the market. The interest rates quoted in the media can generally be further reduced by a competent and effective broker who should be accredited with multiple banks and therefore offer you the best product fit and competitive interest rate options. Also confirm that your broker has updated his/her licensing requirements under the new National Consumer Credit Protection Act.
The decision of fixed and variable interest rates always comes down to your personal situation. A variable rate product will give you greater flexibility with off-set accounts, transferring money and making additional payments. Having said this, there is a couple of banks that offer off-set accounts on fixed rate loans! A fixed rate will offer you a guaranteed interest rate for a certain term, generally between 1-5 years in length, although you can request a 7-10 year fixed rate term at most of the majors. At present there are 3 year fixed rates that are as low as 6.4%p.a whereas most clients’ standard variable rates should be 7.1%p.a or lower. This is a good time for discussion on loan structure with your financial planner.
A few questions you should ask yourself are; ‘What would happen to my personal situation if interest rates went up to 9% p.a?’ ‘Could I afford the repayments?’ ‘Would I have to sell my property?’ A good balance of fixed and variable rates can ensure both comfort/security and flexibility for a lot of clients.
Bonus/Inheritance: Generally this should be placed in your offset account in the first instance, and then discussions should take place with your independent financial planner as to the best investment opportunity for these funds. A 100% off-set account is a facility that enables you to hold money in a savings/general account with the same institution as your loan, and reduces the amount of interest charged on your home loan/investment loan.
If you are recommended alternative investments, have a complete understanding of the risk profile associated with this investment, especially given current economic vulnerability.
When speaking with your planner, understand that the return on investment should be greater than the interest charged on your loan account to justify a move into another investment i.e. shares, managed funds. These are also riskier investments.
As always my advice is, do your homework.