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Should I stay or should I go?

Sunday Star Times – 6/12/2009

Question: I have been with one bank all my life, but am concerned that it’s mortgage rates are consistently higher than other banks I could go to. I have no way of checking out how much better of I would have been if I had switched to Kiwibank or ASB five or ten years ago. My home loan is now $75,000 and shrinking mercifully rapidly, but I wonder if it is worth considering a change. I have tended to fix my mortgage at two years and just let it roll over again and again. I do not know what fees and charges I would be likely to face in shifting my loan – which comes up soon – and whether that would make the exercise pointless for the sake of reducing the interest rate by 0.3 percentage points. Can you give me pointers?

Jo Kupa, Manager Roost

Jo writes: To find ways to save on fixed costs within one’s budget is never pointless. You never know what you are going to stumble across when you start. Before deciding whether to transfer, you need to consider actual costs of doing so. There is likely to be bank fees and sometimes legal costs depending on the advice you need. Sometimes banks will provide a contribution to your legal costs, and, in some cases even waiver certain fees attributed to establish the new mortgage. You also need to calculate whether reducing the length of your existing mortgage is better way to reduce interest than transferring to a cheaper rate. Or there may be another way to structure your mortgage that will give you most benefit. Either way, when your mortgage is up for an interest rate review, it’s timely to consider your options. A good mortgage broker can be very valuable in working through scenario to help you reduce interest payable and structure your mortgage to best suit your circumstances. They are also pretty good negotiating on your behalf with the banks. You may find you save more than just 0.3 points on interest rate.

Responses to questions are general and should not be taken as specific advice disclosure statements are available on request.