How much difference could it make?
You might be thinking, how much difference could switching to a lower rate possibly make - after all, there’s only a difference of around 1%, right? Well, let’s look at the numbers.
The current average variable rate from the big banks is 4.64%*. On a $600,000 home loan over 30 years, that means monthly repayments of $3,090 and $512,481 in total interest over the life of the loan.
On the other hand, the lowest variable rate in the Mozo database at the moment is 3.39%. On the same loan as above, that’s $2,658 each month, and total interest of $356,722 over the life of the loan. That’s an extra $432 in your pocket each month and a total saving of $155,759 - not too shabby!
Top tips when refinancing your home loan
1. Compare rates to see what’s out there.
The first step should be to take a look at the home loan offers in the market at the moment and see if your mortgage measures up.
“There are smaller or online lenders out there that you may never have considered or even heard of, and this might be where you find the best offer. That’s where comparison sites like Mozo come in, making it easy for you to compare a range of options side-by-side,” says Lamont.
2. Think about what features you use
“Refinancing your home loan is the perfect opportunity to reexamine what features you really want and use. Things like an offset account or free extra repayments can help you cut down on interest,” Lamont says.
Think about what’s working for you now and what might help you save even more money, then create a home loan wishlist. Once you know what you want, you can look for an option that fits the bill and has the lowest interest rate attached.
3. Budget for any switching costs
One thing to keep an eye on is any extra costs that might come with switching your home loan, such as a discharge fee from your old lender, or an application fee from your new one.
“In most cases, the savings by switching to a better deal will easily outweigh any fees involved, but it is something to think about, and budget for before you take the plunge,” says Lamont.
*Average and lowest rates calculated for a $600,000, variable rate, owner-occupier loan with principal and interest repayments and an LVR of 80%. All rate are correct at the time of writing, but subject to change.