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Tips for refinancing

Refinancing your home loan is a great way to reduce your interest rate, consolidate debt or get a loan that has better features.

Before you decide whether to refinance or not, you need to make sure that you really will be better off financially. Make sure you thoroughly check out the interest rate options, comparison rates, plus any fees and charges.

Here are some further tips to help you with your decision:

Is your current mortgage the best one for you?

Markets change. Your needs and lifestyle changes. Better loan options become available. If you’ve had your current loan for a while, it’s likely that you can get a better option.

It may be that you just want a better rate. Or it could be that your existing loan doesn’t include such options as redraw.

Look carefully at all your options, and compare them to your current home loan.

Is it worth refinancing?

When looking at the financial advantages of refinancing, don’t just look at what your new monthly repayments will be: include any costs of refinancing.

For example, you may have to pay exit fees for your existing loan and this could add up to several thousand dollars. So, how long will it be before the difference between your current repayments and the hopefully lower ones on your new loan take to make up for the costs? If it’ll take years before you break even on the total cost, it may not be worth it. So think about the total cost. Of course, you may be refinancing for other reasons - such as better features included in your loan. Weigh up these advantages as well.

Consolidate your debt

If you have other debts, such as credit cards, it’s probably worth consolidating them into your new loan. Especially if those other debts are attracting a higher rate of interest.

Refinancing may give you the chance to clear up those extra monthly costs, and help get your budget under control.

One thing to remember they - like your home loan - will now be paid off over a longer period of time and will add to the amount of overall interest you pay. In the short term, it may offer financial relief. In the long term, you will pay more.