We all know what competition looks like in a market economy. Pepsi vs Coke, Hungry Jacks vs McDonalds and Android vs iPhone are but some familiar examples of competition each of us can relate to. Subconsciously we know that competition can’t be a bad thing because by two sellers trying to outperform each other in price and quality, we the buyers ultimately end up benefiting as we get to choose from a range of different products and buy the one that tickles our fancy the best.
So if that’s how well competition works in the commodities market where we buy and sell items, we must ask ourselves does it also work wonders in the capital market where we buy and sell money? Let’s explore.
When you borrow money from a bank, you are effectively ‘buying’ money that you don’t currently have, ie. a Loan for a cost you will pay in the future, ie. Interest. Just as if two vendors were selling the same product, chances are you would go to the one that demands less profit out of you, the capital market works no differently. Most consumers tend to go with banks that offer lower interest rates.
The simple answer, to our topic question is therefore yes, absolutely. Competition among banks is more of a good than a bad thing. If you ever find a home loan deal that offers you all the great features you want with a cheaper interest rate than that on your current loan, then it is folly not to refinance your loan as you could be missing out on the potential to save literally thousands of dollars over a loan term.
That said, home buyers often find themselves approaching refinancing with a degree of complacency, be sure not to fall into this trap. It is very important to understand the deal you are on currently with all its features and the prospective deal you are about to switch to. Not only will this optimum understanding aid your decision better, it will also prevent you from ending up incurring some kind of a hidden fee associated with exiting the existing loan with your current provider.
While there is no longer an official exit fee in Australia for switching home loans, your current loan product may involve some sort of a feature that ends up making the customer pay some other kind of a fee before you are able to make the switch. This could be a settlement fee, a deferred establishment fee, some other form of a government charge such as a mortgage registration fee or a title search fee.
To conclude, competition among banks is good, as it encourages banks to avoid complacency and keep on striving for better performance, however, one must always conduct proper research before making any decision.
At SwitchMyLoan.com.au we are here to help you make the most of competition between the banks by finding you a better home loan deal!
Call 1300 307 155 and start saving today!
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