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Top things to consider when refinancing

There are a few reasons why you might be looking for a new lender for your mortgage. Maybe your fixed rate home loan is ending soon, or you're looking for a better deal on your rate.

It’s a great idea to shop around when you refinance but it can be a confusing and time-consuming process.  Here are some things to keep in mind as you’re doing your homework.

1. Get clear on your budget

Thanks to rising inflation, everything has been getting more expensive – groceries, petrol and, of course, the interest on your home loan.  Before you start looking at what the banks have to offer, run the numbers for your household budget so you know what you can afford for your monthly home loan repayments.

2. Know how much you’ll be paying

When you start to compare home loans, make sure you know how different options measure up.  Headline interest rates can be misleading because they don’t always include all the fees and charges.

Plus, there can be introductory rates or other deals that make a home loan offer seem more attractive.  Make sure you have all the information you need on how much you’ll be paying and for how long, if a discounted interest rate only lasts for a limited time.

3. Should you go with fixed or variable?

There are pros and cons for fixed rate and variable rate loans.  The right choice for you depends on things like your household budget and how comfortable you’ll be if your payments go up.

Having a fixed rate mortgage means knowing exactly what your mortgage payments are for the term you choose.  This gives you peace of mind that if interest rates rise, your payments will stay the same.

The repayments on a variable rate mortgage will change as interest rates change.  If interest rates keep going up, your repayments will be rising too.  On the flip side if the RBA cuts interest rates in the future, then your monthly repayments will be less.

It’s impossible to know where interest rates will go next.  What matters is being able to afford your repayments whether rates go up, down or stay the same.

4. Choose the right loan term

The loan term you choose has a big impact on what you’re paying for your loan – in total and from month to month.

A longer term means lower monthly payments.  As you’ll be paying less each month, you’ll have more room in your budget for saving money or paying for extras like travel or entertainment.  But it also means you’ll end up paying more interest over the full life of your loan.

With a shorter loan term, you’ll pay more each month, but you’ll be mortgage-free faster and pay less interest over the life of the loan.

5. Get to know which loan features you want

Offset account
An offset account – a transaction account linked to your mortgage – can help you pay less interest on your loan while still having access to your balance,  The funds in your account ‘offset’ the outstanding amount on your mortgage so that you pay less interest.  You can also deposit and withdraw funds when you need to.

Redraw facility
With a redraw facility you can make extra repayments on your mortgage on top of the minimum amount.  The extra money is there for you to withdraw later if you need it.

Making extra repayments reduces what’s left to pay on your loan and the overall interest.  You can also access the funds for paying for something unexpected like a new appliance or repairs on your car.

6. What level of customer service are you looking for?

Getting the right features, rate and type of loan are all important but service matters too.  Having a personal relationship with a smaller bank that knows you well can give you extra support for your home loan choices and application.  Make a list of what you want from your bank and compare this with the service that different banks offer.  And check out some online reviews to see what other people’s experience with the bank is like.

Get in touch if you need a hand

At Cairns Bank we understand that refinancing can be tricky, with lots to consider.  As your local, customer-owned bank, we take the time to understand your needs and talk you through the options that you have.

If you’re looking to refinance your loan, drop in for a cuppa and chat about which options are a good choice for your situation.