Doing the calculations
Here's an example. Let's say Sue has a $300,000 loan repayable over 25 years. Her current rate is 6.4% and her monthly repayments are $2,006.
If Sue can refinance to a loan with a rate of 5.9% a rate reduction of 0.50%, she can lower her repayments to $1,914 a saving of $92 each month.
looking at the cost side of things, we'll assume Sue will pay $1,000 to refinance her loan. In this case it would take about 11 months ($1,000 divided by $92) for Sue to claw back the costs through the savings she makes. That's not a bad timeframe. If it was to take several years to recover her costs, refinancing may not be worthwhile.
As a guide, if the linked account has a balance of $10,000 and your loan is worth $300,000, interest will be based on a loan of $290,000 ($300,000 less $10,000). This makes an offset a great way to put personal savings to work to pay off your loan faster. Be aware, offset is a feature that may not be available on low rate basic loans so you need to weigh up if the value of your savings will be sufficient to make up for a higher loan rate.
Lower variable rate
Refinancing can come with some costs so it is essential to weigh up the savings of refinancing against the expense involved. As a guide, if you can trim 0.5% from your home loan rate, refinancing is likely to put you in front financially. But be sure to crunch the numbers for your particular situation or ask your Mortgage Choice broker to do the sums for you.