Refinancing offers a significant advantage in the form of accessing a lower interest rate. By securing a lower rate, you can experience substantial savings on your monthly mortgage payments, potentially freeing up hundreds of dollars each month. You have the flexibility to utilize these savings for essential or discretionary expenses, or alternatively, maintain your previous repayment amount to accelerate the loan payoff and save significantly on interest costs in the long run.

Home equity represents the disparity between the amount you have paid off on your mortgage and the current value of your home. For instance, if you own a home valued at $600,000 and have an outstanding loan balance of $250,000, your equity amounts to $350,000.

Refinancing your home provides an opportunity to tap into this equity, as your lender may allow you to access a portion or the entirety of it. This accessible equity can be utilized according to your preferences and needs.

Commonly, borrowers opt to leverage their equity for purposes such as home renovations, vacations, purchasing a car, or making investments. It's important to note that your equity serves as a valuable bargaining tool when negotiating with your lender and may facilitate securing a better interest rate. However, it is advisable to exercise caution and avoid depleting all of your equity at once. By prudently managing your equity, you can maximize its benefits over time.

When refinancing your home loan, you have the opportunity to potentially shorten the loan term. It's important to note that opting for a shorter term will likely result in higher monthly repayments. However, if you are in a favorable financial position to do so, paying off your loan faster can lead to significant interest savings over the loan's lifespan. For instance, if you currently have a 25-year loan term and decide to reduce it to 15 years, your monthly repayments will increase, but you can potentially save thousands of dollars on interest. To determine if this strategy is suitable for you, it is crucial to calculate the projected interest savings and evaluate how they align with your financial goals.

Check out our loan repayment calculators to see what you could achieve by refinancing.

Refinancing offers the opportunity to request additional features from your lender, such as access to redraw facilities and offset accounts. An offset account functions as a transaction account linked to your home loan, where funds deposited are offset against the loan balance when interest is calculated.

For instance, if you have $50,000 in your offset account and a $450,000 loan, interest will only be charged on $400,000 of the loan balance. On the other hand, a redraw facility allows you to make extra repayments on your loan, which can be withdrawn if needed, subject to the lender's discretion.

An offset account provides a valuable means to reduce interest payments on your loan, while a redraw facility offers flexibility in emergencies or when making significant purchases. It's important to note that your lender may adjust the interest rate to incorporate these features, so it's essential to evaluate the potential savings against any associated costs.

Before opting for these facilities, ensure that the benefits outweigh any additional expenses you may incur, allowing you to make an informed decision regarding their inclusion in your refinanced loan.

If you are currently on a variable rate loan, refinancing provides the opportunity to switch to a fixed rate, or vice versa.
Alternatively, if you desire the benefits of both stability and flexibility, a split loan option may be suitable for you. A split loan allows you to allocate a portion of your loan to a fixed rate and the remainder to a variable rate, providing a balance between certainty and the potential for rate adjustments. Choosing the right loan structure depends on your individual circumstances, financial goals, and your outlook on interest rate movements. Evaluating these factors will help you determine the most suitable option when refinancing your loan. 

When your home equity is less than 20%, you may be required to pay for Lenders Mortgage Insurance (LMI). This insurance safeguards the lender in case you are unable to fulfill your home loan repayments. It is important to note that LMI can be quite costly and typically needs to be paid upfront as a lump sum.

Before proceeding with refinancing, conducting thorough research is crucial to understand the potential costs involved. It is important to consider various fees that may arise during the process. These may include charges from your current lender for terminating the existing loan, as well as application and valuation fees imposed by the new lender.

If you are refinancing from a fixed loan, it is essential to be aware of potential break costs, which can be significantly expensive. It is advisable to calculate the overall cost of fees before committing to refinancing, ensuring that the potential savings outweigh the charges incurred. By carefully evaluating the financial impact, you can make an informed decision regarding the viability of refinancing and its potential benefits for your situation.