Family saves $1000 per month switching loans as broker warns of mortgage holiday risks

The northern beaches couple were looking for ways to cut down their mortgage costs and were considering refinancing since rates had dropped to record lows in recent months.

They thought there was a possibility they could get a saving on their repayments but were blown away with what the banks presented them.

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They ended up switching loans to a different bank and have walked away with big savings.

“The (deals) were way better than we thought … we’re now saving $1000 a month on our repayments,” Ms Fairley said.

“It’s a considerable amount for a family … it will be extra money for a couple of things. We’re hoping to upgrade from our two-bedroom unit at some point, this could mean we’ll have a bigger deposit.”

Ms Fairley said they considered refinancing their Dee Why unit partly because of the coronavirus and the damage it might do to the economy.

“We wanted to do it anyway because we knew rates were lower but (the virus) sped up our decision … it’s a good time to try to cut spending,” she said.

The couple were charged a break fee for changing lenders but Ms Fairley said it was insignificant compared to the $1000 saving they were getting each month.

Mortgage Choice broker James Algar said record low interest rates meant refinancing could deliver big savings for homeowners but most were failing to check what interest rates were available to them.

“Slightly more (owners) are checking these days but most are still paying more than they need to,” he said.

It was common for homeowners to be paying rates with a four in front, despite deals being available with a two in front, Mr Algar said. “They might be paying what was a good deal a few years ago but a lot has changed.”

Refinancing was generally a better option for most struggling homeowners than taking up so-called “mortgage holidays”, he added.

Numerous banks have offered the holidays – usually a few months of deferred payments – as a way to help struggling property owners and investors through the coronavirus crisis.

But Mr Algar said the arrangements should be a last resort.

“Even if you can’t move lenders, now is a good time to renegotiate with the bank,” Mr Algar said. “Rates have dropped so low you can usually get a huge saving and this may be enough to ease the burden … a rate holiday has some risks.”

Mr Algar said deferring loan payments for a couple of months would add thousands in interest costs to loans. It would also make it harder for mortgagees to refinance down the line.

“Banks have been very generous and we have yet to see them knock back a request for help, but they are not going to forget the assistance,” he said.

“Officially, a mortgage holiday will not affect your credit score but realistically a bank will find it difficult to motivate extending a new (loan product) in the near future.”

Landlords who were still employed were in a unique position to take advantage of improved rates because even with a tenant paying reduced rent they still had plenty of refinancing options, Mr Algar said.

“Investors can now get a rate in the range of 2.7 per cent. Most are paying in the high threes or more … if your tenant is not paying rent it is not all doom and gloom. You can renegotiate with the bank,” he said.