Thinking of Refinancing Your Home Loan? Here’s What to Check First

If you haven’t reviewed your home loan for a while, refinancing can be worth considering. But a lower advertised interest rate doesn’t automatically mean you’ll be better off.

Before making a move, there are a few things worth checking.

1. Refinancing your home loan? Start with your current interest rate

First, find out exactly what rate you’re currently paying.

If you’ve had your loan for a few years, there’s a chance your lender has better rates available to new customers, or may be prepared to reduce your existing rate if asked.

Sometimes a simple rate review is enough. If your current lender is competitive, refinancing just for the sake of refinancing may not make sense.

2. Look at the overall cost, not just the rate

A lower rate can look attractive, but refinancing can involve costs such as discharge fees, application or settlement fees and, depending on your circumstances, valuation or government charges.

The important question is:

How much will refinancing actually save you after the costs of changing lenders?

That’s something I calculate for my clients before recommending a refinance.

3. Check whether your loan still suits your circumstances

Your financial position may be completely different from when you originally took out the loan.

Refinancing isn't always just about getting a lower rate. You might now want an offset account, access to equity, a different loan structure, or the ability to consolidate other debts.

It’s worth looking at the whole picture rather than simply comparing interest rates.

4. Your property may be worth more than you think

f you've owned your home for several years, an increase in its value combined with the repayments you've made may mean your loan-to-value ratio has improved.

That can potentially open up more lender and pricing options.

A mortgage broker can arrange indicative property valuations with different lenders to help assess your position before you decide whether refinancing is worthwhile.

5. Your borrowing capacity still matters

Having plenty of equity doesn't automatically mean you'll qualify to refinance.

Lenders assess your current income, expenses, existing debts and financial commitments under today's lending criteria.

This is particularly important if your circumstances have changed since you originally obtained the loan.

6. Don’t forget your other debts

Credit cards, personal loans, car loans and buy now, pay later facilities can all affect borrowing capacity.

In some circumstances, refinancing can also provide an opportunity to restructure or consolidate debts. However, rolling short-term debt into a home loan needs to be considered carefully because extending that debt over a much longer period can increase the total interest paid.

So, is refinancing worth it?

Sometimes the answer is absolutely yes.

Sometimes the best result is staying exactly where you are and negotiating a better rate with your existing lender.

The point of a review is to work that out before going through the process of refinancing.

I’m Kath from My Mortgage Hacks, a mortgage broker based in Brisbane North. I help clients across Brisbane, regional Queensland and Australia review their existing home loans and compare their options.

If you’re wondering whether your current home loan is still competitive, get in touch and I can take a look at where you stand.