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I noticed a Facebook ad today from TSB Bank touting a 15 month fixed rate of 4.95%, $1000 toward cash for your troubles plus an ipad or iphone. Sounds great doesn’t it?

But watch out for the T&Cs because all such offers come with strings attached. I’m not picking on TSB here because all the banks send this kind of message out from time to time. But I just want to remind readers of some of the things to think about before you leap into bed with a new bank and a new mortgage.

Can you do better with your current bank?

A lot of the time you can, actually. A large percentage of customers have the ability to change easily and the banks know it so let that work for you. You don’t need to threaten the bank with your pending departure unless you’re that way inclined. Talk to them. Tell them what you want. Chances are you may not need to change at all.

If your bank won’t budge, consider the costs

One of which is the fact you have to meet the new bank’s lending criteria. This might be harder than you think especially if your situation has changed since you took out your current mortgage. A mortgage broker is ideally placed to give you some advice on your chances of success (and to handle the process for you). Just remember you have to get through the assessment process.

These days banks are throwing cash at you to change to them and this can help offset the legal cost of doing so. But do the numbers on it. The new interest rate you get has to be substantially better to make the change worthwhile. Why would you change for a piddly $10-15/month reduction in your payments? Don’t get me wrong, a dollar is a dollar. I just think if you’re looking to save pennies then there are probably easier ways to do that (like having one less coffee a week).

For those with less than 20% equity then there is also a low equity charge to think about and this can add up. It’s either charged as a lump sum (and added to your mortgage) or your interest rate is increased anywhere from 15 to 50 points (50 points is like going from 5.00% to 5.50%). This specific charge is usually what stops most people in their tracks.

Most people stay put

Because the numbers just don’t work out. For those that do change it’s normally because they’ve gone to their bank with a specific proposal in mind and been turned down. So they’re looking for an alternative.

My advice – before you rock up to the new bank get some info and crunch some numbers. Or have us do it for you. We’re here to help you with decisions like this.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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