A beginner's guide to refinancing

Refinancing is a great way to review your loan product features and interest rate. Your home loan is likely the largest debt that you hold, making it critical that it is ‘serviced’ in such a way that it remains competitive and meets your lifestyle changes.

What is refinancing?
Refinancing essentially is the act of replacing one loan product with another loan product, usually with different terms and a lower interest rate.

How often and why?
It’s a good idea to review your mortgage product every 3 years with a view of refinancing. During this period your interest rate may have become less competitive in the market. When we experience market conditions where the Reserve Bank is lowering interest rates, a fixed rate product from 2 years ago may not financially stack up anymore.

Whilst a home loan health check can save you money, there are often other reasons that may lead to refinancing. Renovating, purchasing an investment property or a change in circumstances (like a new job on a different salary) are all reasons that may require a review of your loan.

Costs to consider
There are a number of costs to consider though before you jump in. Fees and charges can apply for changing loan products, from both your current lender and your new lender. It pays to know exactly what refinancing will cost before switching lenders. Take into account discharge fees, any break costs, upfront fees and Lenders Mortgage Insurance (if applicable).

A good way to assess the true outcome of refinancing is to determine the point at which you will break even from the exercise. As always if you are looking to do anything with your loan, it is a big financial decision and it is important to do your due diligence to ensure refinancing is the right move for you.