Introductory rate bait costing Aussie homeowners thousands

Friday 16 February 2018

Article by Ben Tosi

Aussie lenders are luring prospective home loan customers with competitive introductory rates, but these could cost you thousands in unnecessary interest over the long run, according to recent Mozo research.

Fish taking the introductory rate bait.

Crunching the numbers in the Mozo database, we found that homeowners could pay as much as 174 basis points more when the ‘honeymoon period’ on their home loan ends.

In fact the research revealed that the average homeowner with a $300,000 home loan could end up paying as much as $3,423 in additional interest charges each year if they’re caught taking the introductory rate bait.

RELATED: Best 2018 home loans for refinancers - Mozo Editors’ picks

But this can become an even more costly error when you consider how much extra interest you could end up paying over the life of the loan, said Mozo Director, Kirsty Lamont.

“If borrowers fail to check the fine print they can end up stuck with a loan that has an uncompetitive ongoing rate after the introductory period ends,” she said.

“That mistake can end up costing you tens of thousands of dollars in extra interest over the term of the loan.”

How to use an introductory rate

While introductory rates can end up being a drain on your family finances, Aussie homeowners - particularly first home buyers - can exploit these rates by refinancing before the honeymoon period ends.

“These sorts of intro rate home loan deals are particularly popular with first home buyers trying to break into the property market but can also be extremely profitable for lenders if borrowers don’t refinance when the intro period ends,” said Lamont.

If that’s not your style however, Lamont said keeping your home loan low maintenance (but low rate), is key.

“If you aren’t in the habit of regularly reviewing your mortgage, you could be better off choosing a low rate home loan.”

RELATED: CommBank’s new 3.79% introductory offer for first home buyers: but proceed with caution

The costs involved in refinancing

Aussies looking to take advantage of an introductory rate then refinance before the revert rate kicks in, will want to know what the charges are around refinancing - so here is a brief overview of what you can expect to pay.

  • Discharge fee: When you farewell your old provider, they may charge you a termination fee that can be anywhere between $0-$600.
  • Application fee: When you apply for the new loan you may be charged an upfront fee from $0-$1,000 but this could be waived if you’re a creditworthy borrower.
  • Registration fee: Another fee to budget for is the registration fee when you roll your mortgage over to a new provider.
  • Valuation fee: The new lender may want to value your property and charge you a fee for a valuer coming out to your property.
  • Settlement/legal fee: Once the home loan is settled and everything is done, you could incur a fee.

The important thing to remember is that while these might be upfront costs, a cheaper rate could potentially save you thousands over the life of the loan.

Wondering how to go about refinancing after your honeymoon period comes to an end? You can check out our full guide, including an informative video, with all you need to know about refinancing your home loan.

Or if you think you’re ready to start refinancing, head on over to our Switch & Save Calculator, our bespoke tool for home loan refinancers.

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