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DIDN’T GET A RATE CUT? How to switch banks in 6 steps

Is it time to wave goodbye to your bank? Image: Getty

The Commonwealth Bank and NAB have passed on the Reserve Bank’s historic 25 basis point cut in full, but ANZ has only passed on 18 basis points.

Westpac announced late on Tuesday that it was passing on 20 basis points.

It’s a state of affairs Treasurer Josh Frydenberg considers “disappointing”.

“This is deeply disappointing from ANZ,” Frydenberg said.

“Actions like this don’t give the Australian people any comfort that the banks have changed their behaviour.

“The impact of a 25 basis-point cut on a $400,000 mortgage is the equivalent of saving around $60 a month or $720 a year.”

But if your bank hasn’t passed on the rate cut, you can be more than disappointed. You can switch.

Here’s how.

1. Do your research

A good rule of thumb, according to a number of comparison sites, is that if your variable home loan rate is more than 3.99 per cent, you should consider switching.

The major banks' new rates. Source: Yahoo Finance

Databases like Finder’s home loans database compare the average standard variable home loan rate. Some are as low as 3.30 percent, while others are as high as 5.21 per cent.

If you know what other banks are offering, it will give you more bargaining power if you decide to negotiate with your bank.

You should also ask your lender for a key fact sheet: this will help you shop around and compare.

2. Consider negotiating first

You might not want to switch quite yet. As Finder warns, refinancing a mortgage can actually lead to extra costs.

For example, a new lender might require another property valuation and if it deems your property less valuable, you may need to pay mortgage insurance.

You also may be stung with mortgage discharge fees and new application fees. If you can bring the interest rate down to a suitable level, it may well be easier to stay.

But before you negotiate, it’s a good idea to find out how much new customers are paying. Then, ask your bank why you aren’t receiving that introductory rate or bonuses.

They might say no. This is when you might want to seriously consider walking.

3. Consider the length of the new loan you want

Imagine switching home loans only to have another decade added on to your repayment plan. Sounds scary, but it can happen.

The typical loan term is 25 to 30 years and some lenders might force you to take out a new loan of this length, rather than completing the previously required years. It means you might end up with a 25 year loan, rather than the 15 years you had remaining. That’s a lot more interest.

4. Look at the new interest rate and any fees or features that come with it

A cheaper interest rate might just be code for higher fees. ASIC’s mortgage switching calculator can help you figure out if that attractive looking loan is actually worth your time.

“Make sure you check the loan features to ensure you are getting the features you want and not paying for the ones you don't need,” the regulator advised.

5. Think about equity

If you’ve paid off less than 20 per cent of your home loan, it’s unlikely you’ll be able to switch without taking out Lenders’ Mortgage Insurance again.

“What’s worse, is that not only will you be up for another bill, you’re unlikely to get the most attractive refinancing offers because your new low level of equity by definition makes the deal riskier for a lender than if you own more of your home,” RateCity warned.

6. Switch

If you’ve found your new bank, decided you’re happy with the refinancing costs and loan plan and are confident you want to leave, then it’s time to walk.

This part is pretty easy - your new lender will likely take care of the switching and transfer automatic payments over.

I don’t own a house! What about me?

A rate cut might be good for the interest on a mortgage repayment, but it’s rarely good news for savings accounts.

According to Finder analysis, lenders are faster to reduce their savings rates than their home loan rates.

Mozo’s consumer advocate, Tom Godfrey said that as the RBA cuts rates, it becomes an increasingly difficult savings atmosphere.

“[It’s] a scary time for savers,” he told Yahoo Finance.

“There's a very real prospect ... savings accounts could hit 0 per cent. It's not a great time for people who are trying to live off their savings.”

Here’s what to do if you’re unhappy with the rate on your savings account.

Compare and negotiate

As with addressing a dodgy home loan interest rate, the first step for unsatisfied savers is to compare their interest rate and ask your bank for a better deal.

According to Finder’s rate comparison service, there are plenty of savings account rates greater than 2.5 per cent for balances - based on a $5,000 balance.

Source: Finder

But be careful

A high rate doesn’t always stay high.

“There are still plenty of competitive rates available, the key is to look for accounts with ongoing bonus savings rates. Many banks will offer accounts with introductory rates that drop to under 1 per cent after three or four months,” Graham Cooke, insights manager at Finder said.

It’s also worth checking any account keeping fees on the new account and see how they compare to your current account.

Get ready to move

On a $20,000 balance, an increase in the savings account rate of 0.25 per cent means an extra $50 a year.

“There’s no shortage of online savings accounts to choose from, so check your savings rate for max cash,” Cooke said.

“Don’t be fooled into thinking a low rate market isn’t worth the effort when comparing savings accounts. In fact, it’s even more important to get the right deal so you can confidently maximise your savings.”

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