Churned & Burned
The Age
Wednesday July 16, 2003
Only a few years ago, the average home loan term - the time people would hang onto a loan before paying it out or refinancing - was about seven years. These days, it's just 3.8 years.
In April, 14,456 households refinanced their mortgages, accounting for about 28 per cent of all money lent for owner-occupied properties - up 15 per cent from mid-1999.
Mortgage Choice chief operating officer Chris Canty warns that borrowers are increasingly being convinced by some brokers to "churn" their current home loans unnecessarily.
"Around 15,000 households each month are refinancing, but changing lenders can cost the consumer as much as $8500. Added up, churning is potentially costing households tens of millions each year," he says.
"There is an enormous difference between responsible refinancing for positive reasons and churning over your mortgage when there may be no long-term benefit."
Refinancing can incur a range of costs - including exit and break charges, application fees, loan stamp duty and mortgage insurance - and borrowers need to ensure the benefits of refinancing outweigh these costs.
Mr Canty says refinancing is only a worthwhile option for borrowers who want to access extra capital to improve their lifestyle or are looking to convert multiple debts into a single loan.
"If neither of these objectives are achieved, there should be no change in a loan, and if a broker suggests one, the borrower should question his or her motivation."
According to the Mortgage Choice Refinancing Checklist, borrowers should refinance their loan only after considering the following questions:
• Are you dissatisfied with the service provided by your current lender?
• Would you prefer to pay off your home loan sooner?
• Have your circumstances changed since you first took out your loan?
• Do you think that debt consolidation might benefit you?
• Are you considering buying an investment property?
• Are you planning home renovations this year?
• Are there other reasons (like buying a car or taking a major holiday) that
you might wish to top up your home loan?
Top two-year fixed home loans** Banks Lender AAPR* Rate Total upfront fees Ongoing fees Macquarie Bank 6.34% 6.00% $350 Nil ING Bank 6.37% 5.85% Nil Nil HSBC 6.41% 6.09% $605 Nil ANZ Bank 6.46% 5.90% $500 Nil St George Bank 6.51% 5.89% $654 $5/month Non-banks Lender AAPR* Rate Total upfront fees Ongoing fees FCCS Credit Union 6.06% 5.85% $1105 $5/month RAMS Mortgage Corporation 6.08% 5.95% $820 $8/month Pacific Mortgage Corporation 6.17% 5.80% $300 Nil Heritage Building Society 6.29% 5.85% $600 $5/month Collins Securities 6.31% 5.80% $600 Nil *AAPR is the annualised percentage - the rate after extra fees and charges are taken into account. ** Rates are for loans $200,000 over 25 years in Victoria for owner-occupied homes. Compiled by www.interestrate.com.au using Cannex data (July 9).
© 2003 The Age