Should you switch your mortgage to another bank?

Currently, many banks are offering enticing cash-back offers to get people to transfer their mortgage lending.

But switching banks is about more than collecting a cash incentive.

You need to consider what’s actually involved in switching your mortgage to a new bank, and if it’s worth the effort

Here’s what you need to know before making a decision.

Are Cash Back Offers Worth It?

Currently, major lenders are offering cash-back offers to customers who are willing to move their mortgage to a new bank. When someone is offering you $10,000 to switch your mortgage, it’s a pretty tempting offer. We even managed to get someone a $50,000 cashback. But, it’s important to look beyond the immediate benefit of the cash and explore what’s really involved in a move.

What is a cash-back offer?

It’s an incentive a bank offers to encourage you to place your lending with them. The bank will give you a lump-sum of cash ranging in value, depending on the size of your mortgage. They don’t simply give this money for free though! There are some conditions involved:

• Minimum Loan Amount – The amount of cash-back you receive is usually based on the size of your mortgage, with larger loans qualifying for higher cash incentives.
• Lock-In Period – Most banks require you to stay with them for a set period (typically 2-4 years). If you leave early, you may have to repay the cash-back amount.
• Competitive Loan Terms? – While the cash sounds great, it’s important to check that the new bank is offering a competitive interest rate and loan conditions.

Cash-back offers can provide an awesome short-term cash injection, but you need to ensure they make sense for your situation in the long run.

Are they worth it?

There isn’t a yes or no answer to this question, as you need to factor in:

• Long-Term Costs – A cash-back offer will give you an instant financial boost, but is the new bank offering a competitive interest rate? Paying a higher interest rate over time could mean you actually spend more than the cash they are offering!
• Break Fees – If your mortgage is on a fixed-term, you may find you have to pay a break fee to exit your current loan. This cost can sometimes cancel out the benefit of switching. Other fees, such as legal costs and valuation fees, may also apply. Sometimes, despite any immediate befits, it allows you to get out of higher fixed rate to current cheaper ones.
• Loan Features – Thinking beyond interest rates and cash incentives, you need to consider whether the new lender provides better loan features. Some banks offer more flexible repayment options, offset accounts, or the ability to make extra repayments without penalty.

If the numbers stack up, a cash-back deal can be a smart move. But it’s essential to look at the bigger picture before making a switch.

What Is Involved in Switching Banks?

Moving your mortgage to a new bank isn’t as simple as just accepting a cash-back deal, and that’s the end of it. Here’s what the process typically involves:

1. Mortgage Application – You’ll need to reapply for lending with the new bank, providing updated financial documents such as income statements, expenses, and debt details.
2. Property Valuation – The new lender may require a fresh property valuation to confirm your home’s market value.
3. Legal Process – Your solicitor or conveyancer will need to handle the transfer of your mortgage from one bank to another.
4. New bank Accounts – Opening new bank accounts and transfer of AP’s and Direct Debits
5. Settlement – Once all conditions are met, your loan is repaid with your old lender, and your mortgage is transferred to the new bank.

As you can see, switching your mortgage can take some time and energy. However, working with the right mortgage broker can make the process smooth and stress-free.

What You Need to Consider Before Switching

Before making the jump to a new lender, ask yourself:

• Are you currently on a fixed-rate mortgage? – As we just mentioned, exiting your current mortgage early may attract break fees, which could reduce or eliminate any financial gain from switching.
• How do the new bank’s rates compare? – A lower interest rate could save you more over time than a one-off incentive.
• What fees are involved? – Some banks charge setup or legal fees, which may offset potential savings.
• Will you need new valuations or documents? – Your new lender may require a new property valuation, which could come at an extra cost.
• Does the new lender offer better long-term benefits? – Consider factors like flexible repayment options, offset accounts, or future borrowing potential.
• What are your future plans? Your income, expenses and long-term financial plans should guide your decision. If you intend to sell your property soon, you need to consider how that might impact the conditions of your cash-back deal.

Why You Should Talk To A Mortgage Advisor First

Switching banks can be complicated, so you need to establish whether it is the right decision for you. A mortgage advisor can help you decide.

Here’s why working with an advisor is a smart move:

• Compare All Your Options – Advisors have access to all the big banks and other lenders, so they can help you find the best deal beyond just the cash-back offer.
• Understand the Fine Print – With a wealth of knowledge and experience, an advisor can assess the true cost of switching, including break fees and long-term savings.
• Save Time & Hassle – From handling paperwork to negotiating with lenders, an advisor takes care of the hard work for you.
• Get Ongoing Support – Even after you switch, an advisor can help you review your mortgage regularly to ensure you’re still getting the best deal.

Final Thoughts: Should You Switch?

Switching your mortgage lender can be a great financial move, but it’s not always the right choice for everyone. Before deciding, make sure you fully understand the costs, benefits, and potential long-term savings.

If you’re considering a move, the friendly team here at Mortgage Suite can help you assess whether switching is the best decision for you. Get in touch today for expert mortgage advice tailored to your situation!