Refinancer Guide
Refinancing is one of the most effective ways to save money on your mortgage. The average homeowner who refinances saves between $2,000 and $5,000 per year. Yet many Australians sit on their existing loan for years, paying what is known as the loyalty tax while their lender offers better rates to new customers.
1Key Financial Priorities
Calculate your break-even point
Refinancing has upfront costs: discharge fee from your current lender (typically $150 to $400), application fee from your new lender, and potentially Lenders Mortgage Insurance if your LVR is above 80%. Divide these costs by your monthly saving to find how many months until you break even.
Check your current rate against the market
If your rate is more than 0.5% above the best available rate for your loan type, refinancing is almost certainly worth it. Use the comparison rate (not just the advertised rate) to compare true costs across lenders.
Understand your loan-to-value ratio (LVR)
Lenders offer their best rates to borrowers with an LVR below 80%. If your property has increased in value since your original purchase, your LVR may have improved significantly, unlocking lower rate tiers. Get a desktop or formal valuation to confirm your position.
Watch for cashback offers
Many lenders offer $2,000 to $4,000 cashback to refinancers. These are worth taking if the underlying rate is competitive, but do not let a cashback offer distract you from a higher ongoing rate that will cost you more over 2 to 3 years.
2Best Loan Types for This Stage
Variable Rate Refinance
Most flexibleYou can make extra repayments, use an offset account, and switch again in the future without break costs. Most competitive refinance offers are on variable rate products.
Fixed Rate Refinance
Good for certaintyLock in a competitive rate for 1 to 3 years. Useful if rates are expected to rise, but you will pay break costs if you need to exit the fixed term early for any reason.
Package Home Loan
Consider if you have multiple productsBundles a home loan with a transaction account, credit card, and offset account for a single annual fee. The overall savings can be significant if you use all features.
3Insurance Needs at This Stage
- ✓Review your building and contents insurance when refinancing, as the new lender will require evidence of cover
- ✓Update your life insurance if your loan balance has changed significantly
- ✓Consider whether you still need mortgage protection insurance given any improvements in your financial position
4Common Mistakes to Avoid
- ✗Refinancing to a 30-year loan term from a 25-year loan, resetting the clock and paying more interest overall
- ✗Focusing only on the interest rate and ignoring fees and the comparison rate
- ✗Not having 20% equity and being surprised by an LMI charge from the new lender
- ✗Timing a refinance within 12 months of the fixed rate expiry and paying avoidable break costs
- ✗Applying to multiple lenders simultaneously and damaging your credit score
5Tips for Getting the Best Rates
- 1Call your existing lender first and ask for a rate match. Many will reduce your rate by 0.2% to 0.5% to retain you
- 2Use a mortgage broker who can access 30 or more lenders and negotiate on your behalf
- 3Compare the comparison rate, not just the headline rate, to account for fees
- 4If you have equity above 20%, you are in the strongest negotiating position possible
- 5Set a calendar reminder to review your rate every 12 months to avoid complacency
