We’ve entered a really interesting time in the market. The general consensus over the last nine months has been that rates are going to keep climbing. That’s been the continued expectation early this year and, largely, that’s what has happened.

Then, all of a sudden, one of the main banks comes out with a special rate: 4.99 per cent for 12 months; a whopping 1.5 per cent below all the other banks. A genuine attempt by the lender to grab more market share as quickly as possible, given that it’s only available to new lending.

What happens as a result? Pandemonium. My phone, along with all other mortgage brokers I’m sure, starts going crazy with clients calling and insisting they must move all their lending to that lender as soon as possible to get on that great rate.

Sounds fair enough. Why wouldn’t you want the best rate in the market when all signs are pointing to more rate increases? But there’s more you need to think about
than just chasing the next great rate. Here’s some other things to consider:

COST OF MOVING

Like I said before, it won’t only be me who’s phone was going off the hook with clients wanting to move banks. In fact, my whole team had the same thing. The first thing I said to all of them was to focus on the client’s overall situation and see if moving banks actually makes financial sense. There are always more costs than you expect.

As the borrower, when did your existing lending settle with the current bank? If it’s within the last 24 months then it is highly likely you will have additional costs. Your cash incentive that the current bank gave you at the time of taking the loan will need to be repaid.

And then, if you used a mortgage broker to take out that original loan, then there is a chance they will have a clawback also which will possibly be passed onto you. If your lending is $700,000, then there’s every chance that cost could be around $12,000. The new bank isn’t covering that.

And in 12 months’ time, are you going to move again? Then there’s the legal and valuation costs. It’s quite possible you won’t need a registered valuation, but it’s also possible you will. That’s another $1200 you’ll need to find.

You’ll also need a lawyer to help with the change of mortgages from your current bank to another, let’s say another $1500 there.

This isn’t to say that all these costs make it not worth the move, but you should understand the potential expenses you will need to pay and whether or not it then makes sense.

BANK SERVICING

I remember back in the day (makes me feel old!) I was working as a mobile banker for one of the main banks, and we came out with a quick form refinance application. A one-page loan application that essentially said if a client had been meeting their loan payments for the last six months with their current lender, then we would approve them instantly to refinance to us; no proof of income or anything else needed.

Those days are gone. Simply because you’ve been making all your payments at your current bank doesn’t mean you’ll be approved to refinance onto this lower rate.

You still need to meet the bank’s affordability. Despite the low rate, the bank’s test rate remains unchanged. Which means that while you’ll be borrowing at 4.99 per cent, the bank is testing your affordability at 8.5 per cent. That may be a higher test rate than when you first took out your lending with your current bank and may therefore mean that even your existing lending is not “affordable” in the bank’s eyes.

PATIENCE PAYS OFF

What you need to sit back and think about is, if one bank is doing this, what will the others do? More often than not, when one lender comes out with something special, another follows, and that one might even be better.

In this case, that’s exactly what happened. The offer of 4.99 per cent for 12 months is for a limited time. So, absolutely you should act with some level of urgency to make sure you don’t miss out, but exercise a certain level of patience in deciding whether it’s the right move. Is it financially the best decision based on your situation? And is the offer your moving to the best one you can get?

SPLIT BANKING

My last point to look at is split banking. Multiple clients called me asking to shift all of their lending to this one bank, in some cases unwinding their existing split bank strategy. My own personal view is that investors should always have split banking as part of their lending structure.

Sure, moving all your lending onto the lowest rate in the market might seem like a good idea, but it’s very much short-term gain for long-term pain. Twelve
months is not a long time and you’ll find yourself having to unwind that pretty quickly, which is easier said than done.

I’m a fan of this bank’s offer. I love that someone’s come out against the grain and created a bit of a flurry of activity; a real spanner in the works.

There’s every chance that refinancing will be a good decision for you. All I’m saying is that there is more to your lending than just the interest rate. Reach out to your mortgage broker and understand what it means for you before making the call and remember, the deal of a lifetime comes around every day.