UNDERSTANDING YOUR HOME LOAN
Is refinancing worth it? A guide for Southern Highlands homeowners
A lower interest rate can look great. But before you switch, it’s worth checking what the move will actually cost and whether the new loan suits what you need.
Maybe your repayments are feeling a bit heavier. Maybe your fixed rate is coming to an end, or you’re wondering whether your current loan still makes sense. You don’t need to have the answer before asking the question.
I’m based in the Southern Highlands and help homeowners talk through their lending options. Here are a few things worth looking at before making a change.
What would you like to be different?
Start there. You might want to reduce the cost of your loan, change a feature or understand what happens when your fixed period ends.
Think about what you use now and what matters to you. If you’re paying for features you never touch, put that on the list too.
When you speak with a broker, ask them to explain why an option suits you, what it costs and how they’re paid. You should feel comfortable asking questions. Moneysmart has a helpful guide to working with a mortgage broker.
Ask your current lender first
It’s worth asking whether your lender can offer a better rate. You can compare their answer with the other options available to you.
If you’re considering a switch, get a clear picture of the costs. There may be a discharge fee for closing your current loan and an application fee for the new one. Leaving a fixed-rate loan early can involve break costs.
Lenders mortgage insurance may also apply if you have less than 20% equity, so check that before relying on a lower advertised rate. Moneysmart’s refinancing checklist explains these costs.
Watch the number of years left on the loan
This is easy to overlook when the new repayment looks smaller.
Say you have 22 years left on your mortgage. Start by comparing a new loan over those same 22 years. Stretching it back out to 30 years can lower the repayment, but it also gives you more years of interest to pay.
Keep the loan amount and repayment type the same when comparing, too. That makes it easier to see what’s actually changing.
If a longer term is something you’re considering to make repayments more manageable, ask to see both the monthly difference and the estimated total cost. Moneysmart explains how the loan term affects repayments and interest.
How long before you’re ahead?
Once you know the switching costs, you can make a rough estimate of how long it could take to recover them.
Here’s a hypothetical example. Suppose the move costs $2,000 and you estimate you’ll save $100 a month after allowing for any difference in ongoing fees.
$2,000 divided by $100 gives you 20 months to recover the upfront cost.
That’s a simple starting point, not a prediction of your savings. It assumes the saving stays the same each month and you pay the switching costs separately. It doesn’t account for changing rates, changing loan balances or interest on fees added to the loan.
If you think you might sell or change loans again within that time, it’s worth looking closely at whether the move makes sense. The full comparison still needs to consider the loan’s overall cost and your plans.
Will you use the features?
An offset account can help reduce interest by reducing the loan balance that interest is calculated on. How useful it is depends partly on the money you keep in it.
If a loan charges a higher rate or extra fees for an offset, weigh that up against the benefit you’d expect from your usual balance.
Redraw works differently. It may let you withdraw extra repayments you’ve made into the loan, but access depends on the lender’s rules. Check those details before assuming it works the same way as an offset. Moneysmart explains offset accounts and redraw.
Refinancing a rural or acreage property in the Highlands
Lenders can treat rural and acreage properties differently. If you’re refinancing in the Southern Highlands, I can help you understand which lenders on our panel may suit your property and circumstances, and talk you through your options.
How I can help with your refinance
You don’t have to work through every lender’s requirements yourself. I can compare options from our panel, explain the costs and features, and help you understand whether switching makes sense for you.
If you decide to go ahead, I’ll help organise the application and supporting documents, liaise with the lender and keep you updated through to settlement. And if staying with your current loan looks more suitable, we can talk that through too.
What to have handy when we talk
A rough idea of your balance, rate, repayments and remaining loan term is a good start. If your rate is fixed, check when that period ends. Think about the features you use and anything coming up that could affect your plans.
You don’t need to send documents through the website to start a conversation. Please leave account numbers, statements and ID documents out of the enquiry form.
You may decide your current loan still works for you. Or there may be another option worth looking at. Either way, you can take the time to understand it before deciding.
Talk to me about reviewing your home loan. I work with homeowners in the Southern Highlands and Australia-wide.
This is general information and doesn’t take your personal circumstances into account. Loan options are subject to assessment and lender approval. Fees and charges may apply.