Why that “better deal” at the bank might not be better after all

After the recent decreases to the Official Cash Rate (OCR), the main banks have started to reduce their interest rates, which is great news for homeowners. But although it might seem like a good idea to switch banks for that better rate, there are some things you need to think about.

The financial impacts

Although you may be paying less in repayments, there are a lot of other costs that go along with refinancing. For example, there could be fees to setup the new loan, you may need to get a current valuation for your property, which can be pricey. Banks usually charge you for breaking the current loan agreement, so there could be a fee with that. You will also need a lawyer to do the title transfer and settlement services, so again more costs.

You will need to add up these additional costs and work out if changing is actually going to benefit you or not.

When staying put makes sense

Although the interest rate is higher at your current bank, staying where you are can have it’s advantages. You may have better negotiating power in the future because of the relationship you already have with your current lender. Banks may match competitor rates to retain valuable customers. Potentially by having a long-term relationship with the bank you may be able to get fee waivers and other special considerations. Lastly, your repayment history gives you leverage in negotiations.

How we can help

A small difference in interest rates might not offset the full cost and inconvenience of switching banks. If you are interested to see if you will be in a better situation, give Judy or Peter a call at Mortgage Link Hawke’s Bay. Everybody’s situation is different. By talking to a Mortgage Adviser they can help you work out what the best decision is for you.

Photo by Kampus Production.