Is Refinancing Your Home Loan Worth It?

Your home loan may have suited you when you first applied, but your financial needs and the lending market can change. Refinancing replaces your existing mortgage with a new loan, either with your current lender or another lender, potentially helping you secure a better rate, lower repayments or useful features. Why Consider Refinancing? A lower interest rate can reduce repayments, lower the total interest paid or help you repay the loan sooner if you maintain your current repayments. Refinancing may also provide features such as an offset account, redraw facility, flexible repayments or fixed and variable rate options. You may also refinance to access equity for renovations or other major expenses. However, increasing your debt can significantly affect your long-term repayments and interest costs. Look Beyond the Interest Rate The lowest advertised rate isn't always the best option. Compare the comparison rate, fees, loan features and repayment structure. Potential refinancing costs include: Discharge and application fees Valuation and government charges Fixed-rate break costs Lenders mortgage insurance (LMI), where applicable If your equity is below 20%, LMI may reduce or eliminate your expected savings. Calculate your break-even period to determine how long it will take for the savings to cover switching costs. Be Careful With the Loan Term Extending your mortgage to a new 30-year term can lower monthly repayments but may increase the total interest you pay. Compare a new loan over a similar remaining term to your current mortgage for a clearer picture of the potential savings. Before switching, ask your existing lender whether they can offer a better rate. You can then compare their offer with other suitable loans.