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Refinancing: Six tips to get a better deal on your home loan

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With thousands of dollars’ worth of potential savings on the table, a record number of Australians are refinancing their home loans.

Data from property exchange network PEXA shows almost 364,000 property refinances were recorded in 2021, up 27.9 per cent on the previous year.

Investors Choice Mortgages director Jane Slack-Smith said the record number of Australians refinancing their properties could largely be put down to greater awareness of ‘loyalty taxes’ – where companies charge higher prices for existing customers than for new customers.

Data published by the Reserve Bank of Australia and the Australian Prudential Regulation Authority in 2020 shows home loan customers who had been with their bank for four or more years were paying an average of 0.41 percentage points more on their mortgages than were new customers.

Digital mortgage broker Finspo co-founder and CEO Angus Gilfillan said the prospect of saving half a per cent on a home loan by refinancing was very appealing, especially given the cost of living is going up.

“And when you translate that into a $500,000 mortgage, that means you’re talking almost $60,000 over the life of your home loan,” he said.

Here are six tips to get the most out of refinancing.

1. Shop around

The first tip is to actually start looking for better deals.

It may sound obvious, but many people never get past the ‘thinking about it’ stage.

“A lot of people will anticipate it’s going to be difficult, and so they don’t even start,” Mr Gilfillan said.

“So it’s just really important that you do get started, because our experience is that almost every person can save money by reviewing their home loan and potentially refinancing.”

2. Understand your home loan history

Get to know your current circumstances to make sure you’re “comparing apples to apples” when shopping around for a new loan, Mr Gilfillan said.

Ask yourself questions like: What type of loan do I have right now? What’s my interest rate and balance? Is this for my own home, or for an investment property?

Also, if your current loan has features that are important to you, such as access to a physical branch network or the option to make extra repayments, make sure your new loan or lender offers these, too.

3. Think of your future

Ms Slack-Smith said you should consider your future needs and objectives and pick a lender and product that matches these, as your mortgage will likely take decades to pay off.

Even just having a rough idea of what you want to do in the next 10 years, such as taking a six-month holiday or buying another house, will help you figure out which option will give you the most freedom to pursue your goals.

4. Cast a wide net (with help)

Mr Gilfillan said the number of lenders and products on the market can be overwhelming.

He said seeking advice from a licensed professional could help you find the best product available while saving you hours of research.

5. Be wary of introductory offers

Despite the tempting sweeteners, introductory offers could end up costing you more in the long run.

Mr Gilfillan said you should look for any hidden costs or fees and check what the rate will revert to after the introductory period ends to make sure you’ll be able to pay that amount over the long term.

6. Protect your credit rating

Lenders look up your credit score whenever you apply for a loan, and they don’t like it if your record contains multiple requests for your credit score from other lenders.

“Every time you make a credit application it does record on your credit files,” Mr Gilfillan said.

“So you want to make sure that you do your research first and then you apply for the lender that is going to be best for you rather than doing multiple applications up front.”

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