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Raring to Refinance? Be sure to do the maths

Are you still going to the hairdresser with a photo of Jennifer Aniston’s ‘Rachel’ cut? Sometimes, what’s worked for you before isn’t exactly what you need now.

Refinancing your home loan can be a great way to blow out the choppy layers. You’ll get a lower monthly payment with a market-appropriate interest rate and the opportunity to choose a product that might better suit your lifestyle. However, the cost of refinancing a home loan can outweigh the benefits. Fees, loan terms and hidden costs can add up in the long term.

Do you know the real cost of financing a home loan?

Loan application fees

When you refinance, you take out a whole new loan. If your lender charges loan application fees, you’ll be stung with them a second time around.

Some lenders offer home loans with zero application fees, which could save you several hundred dollars when you refinance.

Ongoing fees

A low rate could mask high ongoing fees. Be sure to look at exactly what the refinanced loan will cost you on a regular basis, including any ongoing fees, fixed-rate periods or introductory offers. Some home loans can help you save here too, with no ongoing account-keeping fees.

Seeing the options side-by-side will help you choose a product that really delivers the best value.

Your new mortgage payment

Switching to a new, lower rate is obviously appealing, but like chocolate-covered cheese it might be better in theory. What is the term of your new loan? If you’ve already paid five years’ worth of interest, is it a good idea to start again with a new 25-year term?

Make sure you have a plan before you refinance. A low rate might be ideal if you’re planning to pay out quickly, but extending the life of your mortgage could cost more in the long run.

Loan discharge fees

A refinancing loan works by paying out your existing mortgage. Depending on the type of loan you’ve got, you may be stuck with a chunk of cash still to pay.

Variable-rate loans often come with minor administrative costs when paying out early but fixed-rate loans can be different. If the market has shifted in your favour since you first fixed, you could be up to ‘break costs’ – a way for a lender to recoup the difference. You’ll need to ask your current lender exactly what this cost might be for you.

Non-fee refinancing costs

You may come across all sorts of rules of thumb that determine whether it’s a good idea to refinance. Some people suggest looking at how long it will take for the costs of refinancing to be balanced out by savings on the new loan. Others follow benchmarks like the size of any rate saving you could secure.

What’s often overlooked is a simple litmus test: does the new loan offer features you don’t have at present? Paying off your loan sooner is the best chance you have to save money. There’s a whole range of features that can help you do just that.

So, how much does home loan refinancing cost? It depends on what you have already and the new loan you’re choosing. If you weigh up each cost and compare it to your current loan, you can make sure you’re getting the best possible deal.

To find out if refinancing is the right move for you, consider your goals and crunch the numbers with our refinance calculator.

Solicitor, valuation and agent fees may apply. Terms, conditions, fees and charges apply. Applications are subject to credit approval.

Your Choice Mortgage Brokers Pty Ltd ATF Halo Innovation Trust trading as Heart Mortgage Services - Australian Credit Licence 38643.

The information contained herein is of a general nature only and does not constitute advice. You should not act on any information without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances. The views expressed here are not ours. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties who are not related to us. These links are provided for convenience only and do not represent any endorsement or approval by us.

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