When looking into your current home loan and the other offers currently out there it can seem like an easy decision to refinance for that lower interest rate, but it may not always save you money.
The interest rate you currently pay on your home loan is not the only aspect to consider when thinking about making the switch. Here are some of the most common reasons a lower interest rate will not save you money.
You are still within your fixed rate period
While your loan is currently fixed you are subject to exit fees which can be quite substantial, the reason for this is the banks need to make up for the interest they would have earnt from your loan if you had stayed. More often than not you will spend less money if you stick out your fixed period and refinance afterwards due to the exit fees and the additional fees that come with changing lenders. We recommend calling your current lender and finding out what your exit costs will be before deciding what your next move will be.
Your LVR (Loan to Value Ratio) is above 80%
When you have an LVR higher than 80% you will be required to pay LMI (Lenders Mortgage Insurance) which can be quite high, we rarely recommend refinancing before you hit 80% because this cost usually outweighs the savings you would make from a lower rate. Your LVR is based on how much equity you have in your property; you can get a rough idea as to what yours is by dividing your existing loan balance from the original borrowing amount to find your percentage. You should remember however that fees are also included in this when you refinance so it will change slightly, if you are close to 80% it may be worth looking into as your property may have increased in value which would lower your LVR.
If you think you may want to refinance, why not come in and see us. We can do the research and present you with the best options for your needs or advise on the best timing for you to make the switch and save the most money you can.