Latest NewsRefinance or Stay Put ?Friday, 14 April 2017

The strategy: To work out whether it's worth refinancing my home loan.

I'd love to do it but aren't all the banks as bad as one another? It's a fair question but even standard variable rates vary by more than 1 per cent between lenders.

While rates are still in a state of flux following this month's official rate hike, a snapshot compiled by RateCity last week found that of the lenders who had already lifted rates, the new standard variable rate ranged from 7 per cent (Family First Credit Union) to 8.3 per cent (Arab Bank Australia). Of the big four, Westpac now has the highest standard variable rate of 7.86 per cent and NAB the lowest at 7.67 per cent.

But the standard variable rate isn't the only game in town. Many lenders offer simpler ''basic'' home loans with interest rates up to 1 per cent lower than their standard variable rate and there is also the option of switching to a fixed rate loan if all this rate uncertainty is proving too much for your budgeting.

I heard the government is cracking down on mortgage exit fees. Does this mean I can switch banks without penalty?

Unfortunately not. The so-called crackdown actually refers to legislation that came in on July 1 outlawing unfair mortgage exit fees. Last week ASIC released guidance on what it thinks lenders can and cannot charge. In a nutshell, lenders can only charge fees to cover the costs they incur if you switch out of the loan early. ASIC says they can't charge fees that cover things like loss of profits, marketing and new product development costs.

The measure only applies to new loans taken out from July 1 but banks are already under pressure to reduce these fees for existing customers. ANZ tried to sweeten its 39 basis point rate hike last week by abolishing exit fees. Others will follow suit.

In its study on switching in August, RateCity found the average exit fee was $302 though it varied depending on how long borrowers had their loan and how much they owed.

But exit fees aren't the only cost incurred if you switch. You're also likely to pay an application fee to your new lender (RateCity said the average was $486) and other costs such as legal, settlement and valuation fees. Depending on the size of your loan the total cost can run to $1000 or more.

How do I tell if it's worth it?

The first thing is to ask your lender whether you will pay an exit fee if you switch. A recent survey of borrowers by broker Mortgage Choice found almost half of the people it surveyed paid no exit fee at all.

A spokeswoman for Mortgage Choice, Kristy Sheppard, recommends asking your existing lender for a better deal. They may be prepared to come up with a better offer to keep your business. Almost half the borrowers in Mortgage Choice's refinance survey switched to a different product with their own lender.

While the interest rate is important, Sheppard says you also need to think about what you really need in a home loan. There are a range of loan features available and some have ongoing fees attached. Perhaps you can save money by switching to a simpler product.

Fixed rates are an option, particularly with lenders such as ANZ sweetening their fixed rate offers to lure borrowers away from their increasingly expensive variable mortgages.

Some lenders, such as ING Direct and ANZ, are also offering financial inducements for new borrowers switching to their loans, to help offset the costs of moving.

Once you've decided what you want, Sheppard urges doing your homework on what's available and what it will cost to move.

A mortgage broker can help narrow the choices, or you can do your own research online using comparison websites such as ratecity.com.au and infochoice.com.au.