by Jemma Pearson Thrifty mortgage holders are heading off to banks and brokers with refinancing in their sights. MPP investigates the trend.

Mortgage exit fees – those nasty charges that banks punished you with if you dared leave  them for someone else – acted as deterrents  for mortgage holders to switch lenders or even consider going to a different type of home loan once they had locked down a lender. The several thousand you had to fork out to your current lender would often negate the savings made  by going to a new one. But thanks to a Federal Government regulation that was approved back in March, from July 1 mortgage exit fees have become a thing of the past. The regulation  – introduced to make it easier for borrowers, even those who already have a home loan, to shop around for a better product – has changed the goal posts on the banks and given consumers more options.

Some banks were already moving  in that direction, dumping their fees before the Government change,  but the new regulation formalises the process and as part of it, the Australian Securities & Investments Commission now has the power to stop banks re-badging an exit fee as another type of charge. That potential loophole was swiftly blocked.

National Australia Bank and ANZ had already abolished exit fees before July 1, but NAB went a step further – in February it promised to reimburse $700 to customers who switched from the Commonwealth Bank or Westpac. The competition had suddenly got interesting. The politics between the banks is continuing, with the big four actively trying to differentiate themselves from each other to win their competitors’ clients.

Kathy Curry is from Maroochydore-based Auscredits, a team of independent brokers who are busy helping home owners make the switch. “There is a bit of politics between the banks,” agrees Kathy. “The banks are also offering refunds to clients – paying up to $1000 to new clients  [to cover costs of changing loans].

Kathy’s Auscredits colleague, Paul Muller, also sees evidence the banks’ competitive nature at in the current climate. This is because, says Paul, there are not that many people borrowing, “and the banks have the money. The cost of funding has come back a little bit and the banks have surplus.” So, the lenders have the cash, they just need clients to lend to. Given the timing – it’s been just a few months since the abolition of exit fees – we can perhaps safely assume the government regulation is the reason why so many mortgage holders are reassessing their loans.

Some smaller lenders are coming up offering sharp rates, and fixed rates have come back a long way

Perhaps, but for Brenden Brial, the owner/manager of BOQ Mooloolaba, the shift from  one lender to another comes down to two things – “money and service”. He says he sees perhaps half a dozen people a week who are dissatisfied with their current lenders. “The big banks are just not personal enough no matter how hard they try,” he says. “Their scale is too big and they don’t have the structure.” Brenden adds, “Refinancing is the majority  of our business at the moment.”

Everyone needs a banks, says Brenden, but people are now wanting much more from  their banks, and personal service is high on  the list. “People can ring me on my mobile or get me in the office,” he says. Much more satisfying than ringing into a voice-activated service and being put on hold while waiting to be sent to a call centre.

But clients aren’t just after better service. Paul adds, “Some of the smaller lenders are coming up offering sharp rates, and fixed rates have come back a long way.” This drop in fixed rates is an indication not only that banks are trying to win more clients, but that they also believe variable rates will drop soon. For home owners and would-be borrowers, the news just gets better. While saving money and dumping a lender you are not happy with are solid reasons to refinance, many also do it to consolidate a few loans and make life simple (see case study).

But while consolidation is an attractive option,it does come with a warning. “What you have to mindful of is that a home loan is over a 30-year period, and adding car loans onto it,for example, means paying a car loan off over a 30-year term,” says Brenden. That’s not ideal, but “if people are struggling to make weekly repayments, refinancing can make it easier”. He adds, “I’ve got current clients in a position where they might have racked up some bills, credit cards or small lines of credit and now they are all finished and want to consolidate.”

Tempted to make the switch? Even if it’s possible, unfortunately refinancing won’t be appropriate for all borrowers. If you are considering making the change, ask yourself  a few key questions first. If you’re unhappy  with your current lender and the features of  your loan, if you feel the interest rate is unfair and your fees are excessive or if your personal circumstances have changed, it’s a good time  to at least question your current lender and investigate what kind of deal you can get with  a new one.

If you have no need to consolidate and you’re reasonably happy with your lender, there’s still  a good argument for sitting down with your bank manager (current or new) or a broker for, as Kathy calls it, a “financial health check”.

“If you’re on the right track,” she says, “You’ll feel good about that, and if you aren’t [you can take steps to ensure you get on the right track].”

Brenden agrees. He often gets clients calling up asking to take another look at their loans. “I wouldn’t do it [refinance] if I thought I couldn’t save money or make it easier,” he says. So even if you don’t end up refinancing, it  costs nothing and takes just a little time for bank managers like Brenden to look into your loan and see if it is worth it. “It takes maybe half an hour to crunch the numbers,” he says.

I’ve got clients who might have racked up bills, credit cards or small lines of credit and now they are all finished and want to consolidate

And if you’re turned off the idea of refinancing, or even reassessing your finances, because of all the paperwork and running  around that seems to be involved in even the simplest of financial transactions, don’t despair.  If you decide to switch lenders, you don’t even have to tell your bank that you plan to move.  The new lender or broker will do the breaking  up for you.

Refinancing  in action

• Danielle from Maroochydore bought a home about three years ago. She took out of loan for $267,000, repaying $550 per week at a variable rate.

• She also had a personal loan of $20,000 (repaying $500 per week) and $8000 on her credit card (repaying $150 per week). Her total weekly repayments were $1200.

• Fed up with getting the runaround from her lender when she tried to refinance, Danielle approached a new bank, which rolled all her loans into one loan of $295,000.

• The fixed-term loan at  6.59 per cent means her repayments are approximately $435 per week over 30 years.

• She paid a couple  of hundred dollars in fees  to settle with her old bank. With the hundreds of dollars  a week Danielle is now saving as a result of consolidating  her loans, she is hoping to  save a deposit for an investment property.