The secret to getting a good deal when refinancing your home loan
Like any other financial decision you make, the decision to refinance is one that needs careful thought, research and strategy. As it can be a costly process, you need to ensure that refinancing your home loan will benefit you financially.
This is why it's important to research available products on the market, speak with professionals and crunch the numbers to ensure that the refinanced mortgage will lead to cost savings.
It's also worth noting that many customers refinance with their existing lender if it's simply a lower rate that they're seeking. However, if you're after different features or better customer service, then it may be time to start comparing new lenders on the market.
The term ‘the best refinance deal’ is relative. There are many factors you should consider before switching such as the interest rate, mortgage features and customer service offered by the refinance lender.
Here's some advice about how to make an informed decision when refinancing, and how to get a good deal that satisfies your lifestyle and financial needs.
What's the ‘best’ refinance deal*?
The best refinance deal is one that suits your home loan needs while not raising your expenses. Ideally, a good refinance deal will lower your ongoing expenses and periodic repayments by offering a lower interest rate and more suitable features, such as an offset account and a redraw.
As a result, the best refinance deal depends on your unique situation and needs, so it's best to speak to a mortgage broker to help you find a suitable mortgage.
Before doing your research, you should ask yourself the following:
- What type of loan do I want? You might want to switch from a variable rate to a fixed rate or vice versa, or you might want to refinance to a home loan which allows you to make unlimited additional repayments on your home loan when you have extra cash. During this stage, you should think about your lifestyle and how this may influence the type of loan that you need. For instance, if you're thinking of starting a family in the near future, you may want to consider a fixed-rate or split-rate loan to provide you with greater certainty of what your repayments will be. Ideally, you should have a list of features and specifications you want in your home loan before starting a comparison.
- What are the savings? Savings are one of the most important considerations when refinancing. While it’s good to opt for lower interest rates, make sure that the cost savings outweigh the costs of refinancing or switching lenders. Ask your existing lender for details about any discharge fees or government charges that may apply when you exit your current home loan and consider any upfront costs charged by the new lender. Use our refinancing cost calculator to estimate your switching costs.
- What is the loan term? The length of the loan term can determine the cost savings that result from the refinance. For instance, if you have your mortgage refinanced after paying it off for 15 years and have the balance spread out over another 30 year period, you may actually pay more over the total 45-year duration despite the lower interest rate.
How to compare the best refinance deals*
- Interest rates. The interest rate provided by different lenders will be high in your list of considerations when looking for the best refinance deal. Decide on whether you want a fixed, variable or split rate and if you're selecting a fixed rate, decide how long you want to fix for. Always consider the comparison rate and its impact on your repayments, as this will factor in important fees you'll have to pay.
- Fees. Compare the fees that apply to different lenders. Some of the common home loan fees include application or establishment fees, valuation fees, ongoing fees, monthly and annual fees and others upfront and ongoing costs. Take your time and compare the fees that apply to your new loan and their long-term impact on your mortgage costs.
- Features. Consider the features that you'd like from your new home loan and how these will match the purpose of your refinance. For instance, if you're looking to minimise your account-keeping costs you may want to compare home loans with no ongoing fees or if you've received a pay rise you may want to think about opting for a mortgage that allows you make unlimited extra repayments without penalty.
- Customer service. Another important feature to consider when refinancing is the service that you'll receive from the new lender. Are you satisfied with the product information that they've offered you? Have they clearly discussed the product fees? Is there a direct debit or BPAY option to help you manage your repayments? Are there any package discounts available?
Refinancing home loans comparison
How to get a good refinance deal
- Speak to your current lender: Ask your lender if this is the best deal you can get. Lenders will usually have a number of incentives to retain customers thinking of refinancing, including discounted interest rates and waived fees.
- Shop around: If your current lender isn't willing to negotiate or you'd simply like to refinance with a new lender, then you need to shop around. There can be a big difference in the rates, terms and features offered on different loans, which makes it important for you to compare different products before making a decision. Rates may vary by a very small percentage but even a 0.5% rate difference could translate into thousands of dollars saved over the loan term.
- Check eligibility: When comparing different home loans, check out the eligibility requirements the lender has set before you can apply. The eligibility requirements are usually similar to those that you went through when you first applied for your mortgage. Lenders will consider the value of your property, your income, assets, loan amount and much more. Your loan-to-value ratio (LVR ratio) needs to be within their guidelines.
- Get professional advice: You might need to speak to a mortgage broker to get personalized advice on what your best options are. This is especially important if your do not have the time to conduct proper comparisons yourself. A broker will compare loans from a panel of lenders to find the right one for you and they can even negotiate for a better rate or terms on your behalf.
- Calculate the costs: You will need to calculate the expected costs with a refinancing calculator. This will help you identify the gains that you will make over the term of the loan. Remember to factor in discharge fees charged by your current lender as well as upfront fees applicable with your new mortgage.
- Check your credit history: Review your credit file to ensure that it’s in good standing as it will help support your refinance negotiations. Also, keep in mind that applying for several refinance loans at one time can put enquiries against your credit file so it's best to do your research and only apply with lenders that you think are suitable. This will ensure that your credit history remains in tact.
Switching home loans could help you save a lot on your mortgage repayments over the life of your loan. If you decide to move to a new lender, make sure that you make the best choice by conducting sound comparisons of the costs involved.
Have clear goals from the outset so you know exactly why you're refinancing. Whether you're looking to improve your home, free up some funds or save on your repayments, it helps to seek advice from an experienced mortgage broker so that you fully understand your options.Back to top