Borrowers switching mortgage providers, but not necessarily for the better
Increasing numbers of borrowers are feeling short-changed upon refinancing their mortgages as lenders ramp up their marketing campaigns.
Nearly half (47%) of borrowers who refinanced their mortgages earlier this year did not benefit from making the switch, according to research by the Mortgage Finance Association of Australia.
The industry body has highlighted the growing dissatisfaction in light of the ban on mortgage exit fees being subsequently lifted, which now makes it easier for borrowers to switch mortgage providers.
Even before the ban was lifted on July 1, borrowers have been bombarded with campaigns and special limited-time offers to switch their mortgages.
ANZ is offering incentives of up to $2,000 for borrowers who switch their home loans, and BankWest is waiving the application fee on all home loan applications.
NAB has been particurlarly aggressive in a long-running advertising and marketing campaign offering heavily discounted mortgages via its online brand UBank.
The MFAA findings come as commercial venture One Big Switch, backed by consumer group Choice, continues to attract more borrowers to its refinancing campaign with numbers substantially above 10,000, according to founder Lachlan Harris.
MFAA chief executive Phil Naylor says five years ago about 80% or 90% of borrowers surveyed claimed to be benefiting when they refinanced their loans.
“The number of people satisfied after refinancing has gradually declined over this time,” Naylor says.
“People are just making the decision and then finding out the change was not worth it.
“If you are receiving marketing material encouraging you to switch your loan, at the very least you should show it to a mortgage broker for a second opinion.”
The July mortgage index put out by mortgage broker AFG revealed that refinancing activity has increased from 36% to 39% over the first seven months of the year.
“The grass may not always be greener [when you refinance],” Naylor told Property Observer.
“With a ban on exit fees, the mortgage holder is seen as a potential switcher by the lenders. And that means borrowers are being swamped by extensive promotional advertising.”
He says many people might not know if they are switching to a better deal.
The MFAA says a borrower’s priority should be finding a more appropriate loan, not just a new loan.
Naylor says borrowers should seek credit advice from mortgage brokers before committing to refinancing.
“Simply refinancing doesn’t always achieve the desired goal,” he says.
“And switching for a better rate may not be as important as the terms of the loan. A mortgage is an important financial commitment which warrants a professional opinion.”
The government banned the charging of exit fees on new mortgages as of July 1, allowing mortgage holders to switch to a new loan without incurring early exit fees.
“If you are receiving marketing material encouraging you to switch your loan, at the very least you should show it to a mortgage broker for a second opinion.”
