How I cut my home loan by 1.45 percentage points

I’ve just refinanced my home loan from one of the biggest mortgage lenders in Australia to one of the smallest.

Why? I now have a much lower interest rate.

My new lender, Well Home Loans, is charging me 3.74 per cent for the $268,000 left on my investment mortgage, while my old lender, BoQ, was charging me up to 5.19 per cent.

Here’s the deal with my old mortgage:

• Half the loan had a variable interest rate of 4.64 per cent
• Half the loan had a fixed interest rate of 3.94 per cent
• When the fixed portion ended in December 2018, it reverted to a variable rate of 5.19 per cent

BoQ was offering competitive interest rates when I took out my mortgage in late 2015. But that changed – which was why I negotiated a rate reduction in the first half of 2018 and decided well in advance to refinance away from them when the fixed portion of my loan ended.

I’d also decided that I would strongly consider going with one of the new breed of online-only lenders, because many of them offer lower rates and better service than traditional banks.

My two big concerns

The first step in the refinance process was to compare investor home loans on RateCity.

There were several attractive options, but Well Home Loans stood out, because its Well Balanced investment loan seemed to offer the best value in terms of rates, fees and features:

• Interest rate of 3.74 per cent
• Comparison rate of 3.79 per cent
• Application fee of $499
• No ongoing fees
• Offset account

However, I did have two big concerns, based on the fact that Well Home Loans is not an authorised deposit-taking institution (ADI):

1. An offset account is a deposit account – so how could Well Home Loans offer an offset account if it wasn’t authorised to take deposits?
2. The government bank guarantee only protects money in ADIs – so what would happen to the money in my offset account in the unlikely event Well Home Loans collapsed?

So I emailed my questions to Well Home Loans. I received this reply within an hour:

1. “For our customers who get this loan product, the Well Balanced product is provided by Adelaide Bank and the funds for your offset account are held by the bank.”
2. “For Well Home Loans, we like to ensure that our customers are looked after and, as such, our offset product and, more importantly, the funds in an offset facility are not held by us. Having the backing of Adelaide Bank for this product means that if something did happen to Well Home Loans, your loan would simply be looked after by Adelaide Bank directly, rather than us.”

That was enough to remove my concerns. I decided to refinance with Well Home Loans.

New lender provides old-fashioned service

Well Home Loans is an online-only lender, which means that applications are made over the internet, rather than in a branch.

But home loans can be confusing. So what happens if you need help?

Well Home Loans assigned me a relationship manager, John, who was easy to contact by phone and email. Whenever I experienced a problem during the application or settlement process, John solved it for me.

There are more than 100 home loan lenders in Australia

The refinance went through in January 2019, so it’s still very early days, but I’m happy with my decision to switch from BoQ to Well Home Loans.

Still, that doesn’t mean that I’d never use a traditional bank in the future or that I’d advise others to use online-only lenders.

Well Home Loans made perfect sense given its current offering and my current financial position. But your financial position might be different from mine. And other lenders – including traditional banks – might offer better value in the future.

The moral to the story is not to favour one type of institution over another, but to shop around. There are more than 100 home loan lenders in Australia, and competition is fierce, so if you keep an open mind, you might be pleasantly surprised by what you find.

Compare home loans in Australia