Deciding to refinance comes down to whether the long‑term interest savings outweigh the upfront switch costs and any break fees on your existing loan.
With variable home loan rates in the market often differing by more than 2%, it’s worth checking what else is out there. But a lower advertised rate doesn’t always mean you’ll end up ahead – the real test is the net benefit after all the costs of moving are accounted for.
Start by working out the potential interest saving
Interest makes up a large part of your total loan cost, and even a small drop in the rate can add up over 20 or 30 years. For example, the Moneysmart mortgage calculator lets you compare repayments and the total cost across different rates and loan terms.
Use it to see how your current loan stacks up against a few alternatives. As a rough guide, a rate reduction of 0.5% on a typical owner‑occupier loan could save you thousands over the life of the loan – but you need to be precise with your own numbers.
Then tally up the true cost of switching
Before you go ahead, check these common fees and charges so you can compare them against the expected interest saving:
- Break fee – If you’re on a fixed rate and leave early, your current lender may charge a break fee. These can be substantial, so get a written estimate from your lender before you commit.
- Discharge or termination fee – Your current lender may charge a fee to close the loan.
- Application or establishment fee – An upfront fee when you apply for a new loan, which varies between lenders.
- Switching fee – Some lenders charge a fee if you stay with them but move to a different product.
- Lenders Mortgage Insurance (LMI) – If you have less than 20% equity in your home, you might have to pay LMI again on the new loan, which can quickly outweigh a lower rate.
- Stamp duty – In some states, you may be liable for stamp duty when you refinance; ask your lender or broker to confirm what applies.
Once you’ve gathered the numbers, a mortgage switching calculator can show how long it takes to recover the switch costs through the lower repayments – the break‑even point – and whether you’re genuinely better off over the loan term.
Talk to your current lender first
A simple phone call can uncover a better deal without any of the hassle of refinancing. Tell your current lender you’re considering moving to a cheaper loan. To keep your business, they may offer a rate reduction or waive certain fees. If you’ve built up at least 20% equity and have a solid credit history, you’ll have more bargaining power.
Keep the new loan term in check
A common trap when refinancing is starting a new 30‑year term when you only have, say, 22 years left on your current loan. The lower rate might look attractive, but stretching the debt over more years can actually cost you more in total interest. Aim for a term that’s similar to what remains on your existing mortgage, or shorter if you can afford the higher repayments – a shorter term saves interest in the long run.
How Arrivau fits in
Arrivau provides credit assistance as a licensed Australian mortgage broker. While we can help you understand refinancing options and the types of loans that might suit your situation, we don’t promise a particular interest rate, savings figure, or loan approval. Any information we share is general in nature – it doesn’t take your personal circumstances into account and isn’t personal financial advice. We’re not a lender, and we don’t act as an insurer or underwriter. Our role is to walk you through the process so you can make an informed choice, whether that means sticking with your current loan or moving to something new.
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