With the cash rate remaining unchanged, many homeowners are taking the opportunity to review their home loans and assess whether they’re still getting a competitive deal.

If it’s been a while since you last reviewed your loan, now could be a good time to explore your options. With household budgets continuing to feel the pressure of rising living costs, even a modest reduction in your interest rate could help lower your monthly repayments and improve cash flow.

While refinancing isn’t the right solution for everyone, understanding what’s available can help you make a more informed decision. Here are some key factors to consider.

A Better Rate Could Save You Money 

Home loan interest rates can vary considerably from one lender to another. According to MoneySmart.gov.au, there can be a difference of more than 2% between variable home loan rates currently available. 

Depending on the size of your mortgage, that difference could have a significant impact on how much interest you pay over the life of the loan. 

It’s also worth remembering that long-term customers don’t always receive the most competitive rates. Many lenders offer attractive discounts and incentives to new borrowers, which means existing customers may end up paying more than necessary unless they regularly review their loan. 

Understand the Costs of Refinancing 

Before making the switch, it’s important to understand the costs involved. Refinancing may come with fees such as: 

• Break costs for fixed-rate loans
• Discharge fees charged by your current lender 
• Application or establishment fees from the new lender 
• Product switching fees if changing loans with the same lender 
• Stamp duty, depending on your state or territory 

Comparing these costs against any potential savings can help determine whether refinancing will deliver a worthwhile financial benefit. 

Check Your Equity Position 

Before refinancing, it’s important to understand your property’s current market value and the amount of equity you’ve built. 

If your equity is below 20%, you may be required to pay Lenders Mortgage Insurance (LMI) when moving to a new lender. It’s also important to note that LMI is generally not transferable. Even if you paid it when you first purchased your property, refinancing could result in paying the premium again. 

Understanding your equity position upfront can help you avoid unexpected costs and assess whether refinancing is financially worthwhile. 

Don’t Overlook the Loan Term 

While a lower interest rate can be attractive, it’s equally important to consider the length of the new loan. 

Extending your loan back to a 30-year term may reduce your repayments in the short term, but it could increase the total amount of interest paid over the life of the loan. 

For some borrowers, choosing a loan term that closely matches the remaining term of their current mortgage may be a more suitable option. 

Make the Most of Helpful Loan Features 

Features such as offset accounts and redraw facilities can provide added flexibility while helping reduce the amount of interest charged on your loan. 

An offset account allows savings to work against your loan balance, while a redraw facility can provide access to additional repayments you’ve already made. 

When reviewing home loan options, it’s worth considering whether these features are available and how they align with your financial goals. 

Seek Professional Guidance 

Online comparison websites can be a useful starting point, but they don’t always present the full range of available options. Some may feature sponsored products or only compare a limited panel of lenders. 

A Mortgage Broker can provide tailored guidance based on your individual circumstances and compare a broader range of lenders and loan products on your behalf. 

When assessing refinancing opportunities, it’s also important to keep the following considerations in mind: 

• Upfront refinancing costs versus potential long-term savings
• Future interest rate movements and how they may affect your loan 
• Serviceability requirements, as lenders will assess your ability to meet repayments 
• Rate lock options, which may allow you to secure a fixed rate while your application is being processed 

Refinancing can be a valuable way to ensure your home loan continues to meet your needs, but the right choice will depend on your individual circumstances and financial goals. 

If you’re wondering whether refinancing could help improve your financial position, our team at 1st Street can help. 

We’ll review your current home loan, compare suitable options from a range of lenders and help you understand the costs and potential benefits of switching. 

Speak to a 1st Street Mortgage Broker today for a home loan health check and discover whether your mortgage is still working as hard as you are.