Refinancing from Westpac or CBA? NAB will pay your exit fee, but…

by Chris Lang on February 21, 2011

Refinancing a home loan As you may have heard, NAB has announced its decision to refund mortgage exit fees to new customers who choose to switch from Westpac or the Commonwealth Bank.

What’s the big deal?

A couple of things, actually. Mortgage exit fees are estimated to be $700 – $900, and in the short term an offer to save that much and get better variable rates sounds quite tempting.

According to NAB, they have maintained the lowest standard variable rate for 20 months and their customers save $47 a month on a 300K loan compared to the other, more expensive, mortgage loans.

It is a fact that NAB wins in the comparison of major banks’ SVR rates

NAB: 7.67%
WESTPAC: 7.86%
CBA: 7.81%
ANZ: 7.80%

However…

Hold your horses before you rush to the bank to refinance. Yes, NAB wants your business and is willing to go the extra mile to get it, but this doesn’t automatically mean this is good for you.

There may be more costs to switching banks than just mortgage exit fees – such as loan application fee and lenders’ insurance.

Mortgage application fee and any other loan-related fees that you may incur should be taken into consideration and the overall cost of the loan should be calculated. Then you will be comparing apples with apples.

Lenders’ insurance is another matter not to be forgotten. Normally when people borrow over 80% of the house price, their bank requires a lenders’ insurance – to cover the lender in cases when people default on their loans and the bank has to sell their home at a loss. Lenders’ insurance is a one-off fee that borrowers pay when taking a home loan.

The thing about lenders’ insurance is that it’s not always refundable. Your LMI (lender’s mortgage insurance) contract may have a clause that defines what happens to the premium you paid if you refinance or repay the loan early – but if there is no such clause, there is, most probably, no refund. Even if there is, the partial value of a refund could be low, and since you may be required to take another LMI on the new loan, this expense is certainly to be calculated and considered before you decide it’s worth switching banks.

Some lenders won’t meet you half way when you’re approaching them regarding a refund of LMI. In that case, here is a helpful document (click here to view) that was put together by Consumer Action Law Centre. These people appear to have tons of experience with problematic situations of this sort and their advice is a gold mine.

If you are considering or already have experience with refinancing, I’d love to get your thoughts, tips and questions – leave a comment on this post.

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{ 2 comments… read them below or add one }

coollaaboxy February 25, 2011 at 4:00 pm

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lenders mortgage insurance March 3, 2011 at 2:25 pm

I strongly agree, lenders mortgage insurance is such a thing worth of value. It is so because LMI covers lenders in the event that borrowers made a default on their mortgage.

On the other hand, borrower must know how LMI works.

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