Refinancing your home loan? Top refinancing tips and traps to know

Refinancing your home loan could save you tens of thousands of dollars over the life of the loan, and with interest rates on the rise, it’s little wonder why so many mortgage holders are looking to switch and save. But before you jump headlong into refinancing, there are some crucial expert tips to know for getting a great refinance deal.

According to Mozo banking expert Peter Marshall, it's important to consider smaller lenders as well as the bigger banks when hunting down low home loan rates and fees, and to check whether you're eligible for interest rate discounts if you've built up decent equity in your property.

"It’s always a painful process, but if you can refinance, definitely have a look around, check your current rate, see if you can get something better," explains Marshall.

"Dig around. Search for the little guys who still have decent options available."

One of the biggest mistakes refinancers can make is getting blinded by cash back or honeymoon offers and switching to a mediocre home loan that doesn't reap long term savings. Instead, it's more important to look for low fees, low rates, and useful home loan features like offset accounts or redraws facilities. 

So, if you're keen to switch and save, let's get into the top tips and traps of refinancing. You can use our low-rate home loan comparison table below to see how much you could save by switching.

Top refinancing tips:

1. Look beyond the big banks. Smaller and online lenders often offer some of the sharpest interest rates and lowest fees, not to mention fast online applications and efficient approvals.
2. Understand your LVR. Many lenders now offer tiered rates depending on your loan to value ratio, so if you’ve built up decent equity in your property, you’ll likely be eligible for a sizeable rate discount.
3. Rates aren’t everything. Consider what other loan features could help you pay down your mortgage faster, like an offset account to help save on interest, and compare fees to make sure they’re also competitive.

Avoid these refinancing traps:

1. Chasing cash back and intro offers. Lenders love to woo refinancers with cash back deals, introductory rates, and more, but if the home loan itself is not competitive you'll end up paying more in the long run.
2. Extending your loan term. Your new lender might offer you a loan term of 25 or 30 years, but if you've already paid off part of your mortgage, extending it out again will cost you more in interest and keep you in debt for longer.
3. Ignoring the comparison rate. Many borrowers skip over the comparison rate without realising that it's actually a very useful guide to the 'true' cost of the loan. Often given in parentheses after the headline interest rate, the comparison rate includes both fees and interest rates in its calculation.