Article published 26 May 2021
Let's take a look.
If you have a fixed rate loan
Home loan interest rates have plunged over the past few years, and if you have a fixed rate loan you could be paying a higher rate than necessary. This can particularly be the case if you fixed your loan 2, 3 or even 5 years ago.
On one hand, refinancing to a new loan can see you save with a lower rate. The downside is that leaving a fixed rate loan early can mean paying break costs.
Each lender has their own set of rules around how break costs are calculated. The common thread is that they can be complex, depending on the rate you’re paying, how market rates have moved since you fixed, and the time remaining on your fixed rate term.
Worst case scenario, break costs can run into thousands of dollars. This can potentially wipe out the savings of refinancing to a new loan.
That said, it’s worth knowing exactly how you stand. Your Mortgage Choice broker can explain how much you could be up for in break costs, and whether they outweigh the benefits of refinancing.
If it turns out the costs outweigh the savings, you may be financially better off seeing out the remainder of the fixed term before switching to a new loan.