The thought of refinancing has been front-of-mind for many Australian homeowners, and with good reason. Interest rates are historically low, but the fact that they might not stay that way is encouraging many to jump on the refinancing bandwagon. Refinancing your home loan, when done correctly, can save you thousands of dollars in interest and can even help you pay off your loan sooner. Appealing as it seems, though, refinancing isn’t always the right choice for everyone. Whether or not refinancing your home loan is the right choice will depend on a number of factors, so if you’re considering going down that path, here’s what you should know:
It’s about more than just the interest rate.
That low interest rate might look appealing on the surface, but when it comes time to refinance, you should be factoring in more than just the number. That new rate you have your eye on might come with higher fees, or you may be losing out on other loan features that could benefit you more than the rate alone will.
It will cost you.
Refinancing, unfortunately, doesn’t come without a cost. Loan establishment fees, duties and taxes, and break fees (if your current loan is in a fixed term), should all be taken into your calculations when deciding if now is the right time for you to refinance, lest you end up paying more than you would save. Despite these costs, though, you can still come out on top and end up saving a great deal by refinancing your loan.
Beware of dragging out debt.
When refinancing your home loan, you’re essentially taking out a new loan to pay out your existing loan. Because this means that you are restarting your loan term, it’s vital to make an informed decision on the length of the new loan. If you’ve already paid down 10 years of a 30 year mortgage, refinancing to another 30 year term will mean that you’ll be sitting with that debt for a lot longer and could result in you paying more interest over the course of the loan than you would have had you stuck with your original rate.
Property value shifts matter more than you might think.
In the best case scenario, your property will have increased in value since you purchased it, making refinancing a great way to access the equity in your home. But if the opposite is true, and your property has decreased in value, you could find yourself stuck with a higher LVR (loan-to-value ratio), making getting that desired rate difficult or forcing you to pay LMI.
The decision to refinance your home loan shouldn’t be made lightly. Take the time to consider all of the factors mentioned above, crunch the numbers, and have a chat with an expert. Sitting down with a mortgage broker can help you get a better understanding of how your current circumstances will impact your ability to refinance. If you do decide to take that step, your broker can help you secure the best loan product too. 
