Should you refinance? Compare your current loan to a new offer and calculate potential savings
How much cash can you access without paying LMI?
Refinancing means switching your loan to a new lender (or new product with your current lender) to get a better interest rate or better loan features. The goal is to save money over time.
Mortgage interest is calculated on the outstanding balance. In the early years, your balance is high, so most of your payment goes to interest.
When you refinance and reset your term back to 30 years, you go back to paying mostly interest.
Lower monthly payments often come from extending the loan term. This might help cash flow today, but can cost tens of thousands in extra interest.
Refinance when: (1) You can get a rate at least 0.5% lower, (2) You'll stay in the property long enough to pass the break-even point, (3) Your financial situation has improved and you qualify for better rates, or (4) You want to access equity for renovations or investments.
Typical costs include: discharge fees from your current lender ($150-$400), application fees for the new loan ($0-$600), valuation fees ($200-$400), and potentially legal fees ($300-$800). Total costs typically range from $800-$2,000.
Generally no, unless you need lower payments for cash flow. Resetting to 30 years means you'll pay interest for longer, even if the rate is lower. Try to keep your remaining term the same (e.g., if you have 25 years left, refinance for 25 years) to maximize savings.
Cash-out refinancing means borrowing more than you owe to access your home equity. For example, if your home is worth $850k and you owe $450k, you have $400k in equity. You could refinance for $680k (80% LVR), pay off the $450k, and get $230k cash for renovations, investments, or other purposes.