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Beyond interest rates: What else to consider when refinancing your home loan

Securing a lower interest rate is often the main reason homeowners choose to refinance their home loan, however, there are several other factors to consider to help you choose a loan that meets your needs.

YOUR MOTIVE

While saving money is often a priority when refinancing, it’s important to think about your long and short-term financial goals. Consider whether you want to invest in a new property, unlock equity to renovate your home, reduce your monthly repayments, or pay off your loan faster. Understanding your motives for refinancing could help you to work out which home loans best suit your needs.

COSTS OF REFINANCING

Refinancing can often involve several upfront and ongoing fees. It’s important to consider the savings and benefits of refinancing versus the associated costs.

Fees may be charged by your old home loan provider and your new home loan provider. The amount you pay will depend on your individual circumstances.

Refinancing costs could include:

  • Break costs
  • Discharge settlement fee
  • Application/establishment fee
  • Property valuation fee
  • Settlement fee
  • Mortgage registration fee

If your loan-to-value ratio (LVR) is still high (typically more than 80%) you may be required to pay Lenders Mortgage Insurance (LMI) a second time. There may also be annual or monthly fees associated with your new loan.

Taking all fees and charges into consideration will help you to work out which home loan option is right for your circumstances.

LOAN TERM

Consider whether you want to extend your loan term or stick to the length of your current loan.

Adding extra years to your loan term could reduce your monthly repayments, however, the total amount of interest paid over the life of the loan would increase.

LOAN FEATURES

Think about what you like about your current loan and what features would help you to achieve your financial goals.

Features such as an offset account or redraw facility could help you to reduce the amount of interest you pay and the ability to make extra repayments could mean you pay off your loan sooner.

You may find there are loans with low interest rates that don’t include the features you need so it’s important to weigh up your options.