Is now the right time to refinance my mortgage?

Many Australian homeowners are feeling the pinch as loan rates climb. Because of this, Australians are now choosing to remortgage just to save money on their mortgage.

The Sydney Morning Herald recently reported that the refinancing boom is eroding the major bank’s dominant share of the $2 trillion mortgage market, as their customers shop around for more competitive interest rates with minor lenders.

If you belong to this group, you might be thinking about refinancing your mortgage to get a better bargain as the interest rate keeps going up. However, refinancing it's not always the right choice. Here's what you need to know about refinancing and how it can help you in the current market.

What is refinancing?

When you refinance you take out a new loan to replace your current mortgage. There are many reasons to do this but the most popular one is to obtain a reduced interest rate.

How does refinancing work?

When you refinance, you will need to apply for a new home loan and go through the same approval process as you did when you first bought your home. This means that your current lender will need to assess your financial situation and credit history to see if you are eligible for refinancing.

If you are approved, you will then need to sign a new mortgage contract with your new lender. Once this is done, the new loan will replace your existing one and you will begin making repayments to your new lender.

Refinancing can be a great way to save money on your home loan, so it’s important to reach out to your mortgage broker to help you compare rates before you make a decision. It’s also important to consider the costs associated with refinancing, such as exit fees and break costs, which can vary depending on your current loan contract.

Is refinancing right for you?

Refinancing is not right for everyone. There are a few things to consider before you decide whether it's the right choice for you.

• Breaking costs: When you have a fixed-rate mortgage, you may need to pay break costs when you refinance. This is because breaking your fixed-rate loan may mean paying a higher interest rate on your new loan. If you're thinking about refinancing, it's important to consider the potential break costs involved. Depending on your situation, these costs could add up quickly and eat into any savings you might realize from refinancing. 
• Eligibility criteria: You'll need to meet the lender's eligibility criteria to refinance your home loan. This can vary from lender to lender, so it's important to compare your options before you apply.
• Exit fees: Some lenders charge exit fees if you pay off your home loan early. This includes if you refinance to another lender. Make sure you factor this into your decision before you apply.

The bottom line

Refinancing can be a great way to save money on your mortgage, but it's not always the right choice. Make sure you weigh up the pros and cons before you apply. And if you're not sure, talk to a mortgage broker who can help you compare your options.