The Power Of Consumers

The Age

Wednesday June 4, 2003

Gary LaPersonne, editor mPg

Several weeks ago I wrote about the biggest growth factor in home loans - refinancing - which is currently driving the home loans scene.

That's because savvy consumers among us have discovered that the mortgage marketplace is fiercely competitive, and that the options and combinations available can save them big dollars. The reality is that we've also had a great honeymoon with low interest rates over the past few years.

Talking about honeymoon periods, an example of quick savings is the widely promoted honeymoon rate, with at least one mortgage broker claiming it can slash $2000 or more off your repayments.

The difference between the honeymoon rate and the normal variable is generally about 1.3 per cent. So, if the loan is for 250,000, that's a saving of $3250.

Even if you have a loan that requires you to pay a maximum of $1300 for penalties and fees to get out of it, you would come out well ahead by switching, says Philip Robertson, director of Profile Mortgage Centre.

"So many people are simply unaware of the variety of home loans, their negotiating ability and the advantages in refinancing," Mr Robertson says.

But what about after the 12-month honeymoon period? That's the big danger.

"After a year, many end up converting to a standard home loan rate of 6.57 per cent. What many (lenders) won't tell you is that you can pay a small fee to convert that to

a discount rate," he says.

"For instance, with a major bank we can go to 5.29 per cent on the honeymoon rate. After a year, the client pays $300 to convert to a discount rate of 6 per cent."

Just be aware that some lenders have harsher penalties than others in the second and third year to make up for the first-year discount. So know what you're getting into before swapping your loan. If you aren't sure, talk to the experts ... the more the better.

© 2003 The Age

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