Ask the current lender before paying to leave.
Moneysmart’s switching guidance includes asking the current lender for a better deal before switching. It provides a current stay figure to compare against the full cost of moving. Ask for the revised rate, fees, features and repayment details.
A retention offer is one current stay figure. Compare it with the costs, conditions and assumptions of other options.
- Current rate, repayment and remaining term
- Repriced rate and any package changes
- Ongoing fees and useful features
- Cost to discharge or change the current loan
Calculate the switching cost and recovery time.
Refinancing can involve discharge fees, application or valuation costs, government charges and new package fees. A fixed-rate loan may also have a break cost. Add those costs before using a difference in rate or fee structure as a comparison factor.
Then divide the switching cost by the estimated monthly difference to calculate a simple recovery period. Treat this as a comparison aid only: rate, fees, balance, term, valuation and eligibility assumptions can change.
Record whether the recovery period fits the timeframe you expect to keep the loan or property.
Check equity before assuming the same options are available.
The new lender will assess the property value and total lending. If the available equity is limited, the loan-to-value ratio may reduce the options or create lenders mortgage insurance costs. An online property estimate is not the lender valuation.
If additional funds are part of the refinance, define their purpose and include the larger balance in the repayment and total-interest comparison.
- Estimated property value
- Current loan balance and any linked lending
- Additional amount requested
- Resulting loan-to-value ratio
- Repayment and interest impact of the larger balance
Compare feature rules and costs, not just the feature name.
Offset accounts, redraw, repayment flexibility and split structures can have different effects depending on use, fees, restrictions and rate. Compare the rules and costs, not only the feature name.
- How much money is likely to stay in an offset?
- Will extra repayments be regular or occasional?
- What are the redraw rules, fees and access times?
- Would fixed-rate restrictions matter?
- Does a package fee outweigh the likely benefit?
Compare the cost across the remaining and proposed loan terms.
A refinance can lower the monthly repayment by extending the loan back over a longer term. That may improve short-term cash flow while increasing the total interest paid. Compare the new repayment over both the remaining term and the proposed longer term.
Where debts are combined, compare each debt’s remaining term and total cost with the proposed home-loan term. A lower repayment can coincide with a higher total cost.
When comparing cost, record total interest and the planned payoff date alongside the next monthly repayment.