10 November 2010
In response to the big four banks being a little less competitive than they might otherwise be, ING Direct have responded by making an offer that seems too good to be true. We dig a little further to see what you may need to consider before taking up this offer to refinance your current home loan with ING Direct.
Details of the ING Direct $1,000 offer
â€œRefinance your existing home loan to ING DIRECT and open an Orange Everyday by 30 June 2011, and as our way of saying thanks and to help you with switching banks weâ€™ll credit your Orange Everyday with $1,000!â€ (from ING Direct website)
You must register here before 30 November 2010.
Issues to consider
What are exit fee costs of our current mortgage?
In the first few years of a mortgage exit fees can run to tens of thousands of dollars. You need to ask your bank for the details based on the current interest rate. Be aware that if there is another interest rate rise between when you ask to switch and when the switch takes place the exit fee could be much higher.
Compare ING Direct Interest Rates
As you would expect ING Direct have a suite of competitive home loan products.
At the time of writing, the only the Commonwealth Bank has raised rates of their home loan products in response to the Reserve Bank of Australia (RBA), increasing cash rates by 0.25% on 2 November. The Commonwealth Bank citing increased costs associated with borrowing wholesale funds, increased their home loans by 0.45%. The remainder of the big four banks have remained silent waiting for consumer anger to pass.
Be aware when making comparisons, that expected increases to ANZ, NAB and Westpac home loan products has not yet been passed on. It is expected that these increases will be at least 0.25% and up to 0.45%.
Costs of Switching Home Loans
Whenever you consider changing products you should make yourself aware of any costs that may apply. This includes costs from your current product provider and the provider you are considering switching to. Even though the new product may have a lower interest rate and repayment schedule, the cost of exiting your current product may mean that it is not financially beneficial to switch. Exit fees for some home loans in the first few years can run into tens of thousands. You should also be aware that any quoted exit costs will probably change if there is a rate rise between when you ask to switch and when the switch actually occurs. If there has been a interest rate change initiated by the RBA, be very careful.
Proâ€™s and conâ€™s of ING Direct
ING Direct follows a â€œdirect bankingâ€ model which is heavily reliant on internet and phone banking to service your needs. They do not operate typical bank branches and a limited physical presence allows them to have lower running costs and hence the ability to offer more competitive products. They are owned by the international Dutch banking group ING Group, the third largest savings bank in the world. They currently have approximately 1.4 million Australian customers and are Australiaâ€™s fifth largest bank.
Warning: Never take any action regarding your loans without first working out what the costs are of switching. Very large exit fees may be applicable. Consult your current provider before taking any action. And while you are at it, ask them to match any offer you may have. It is highly recommend that you should consult a qualified finance professional.