5 Key Checks to Refinance Your Home Loan Smarter

2. Check for break fees or exit costs

If you’re on a fixed rate, your current lender may slug you with a break fee for leaving early.  These are charges your lender applies if you exit the loan early. And depending on your rate and how long is left on your fixed term, they can be hefty. Even variable-rate loans may have discharge or settlement fees, which can range from a few hundred to over a thousand dollars. For example, if you’re saving $100 per month by refinancing but the break fees total $2,000, it’ll take nearly two years just to break even. Tip: Always check the fine print before you jump ship.

3. Assess your equity position

Your home’s current value plays a significant role in determining the type of refinancing deal you can secure. Most lenders want to see at least 20% equity in the property to offer their most competitive rates. Equity is the difference between your home’s market value and what you still owe on the loan. If your property has gone up in value, you might be in a stronger position than you think. But if values have dipped or you’ve borrowed heavily in the past, it could affect your options.  Next step: Consider getting a recent valuation or ask a broker for an equity check before refinancing.

4. Review your credit health and income

When you refinance, lenders reassess your financial situation as if you’re applying for a new loan. That means they’ll be looking closely at:

• Your credit score
• Your income and employment stability
• Your expenses and other debts

A healthy credit score and steady income can open the door to better rates and more lender options. However, if your financial situation has changed, for example, if you are now self-employed or you have taken on additional debt, it could make refinancing more challenging. Heads-up for business owners: Self-employed borrowers often need extra paperwork, like tax returns and Business Activity Statements (BAS), so give yourself time to get those prepared.

5. Factor in the upfront costs of switching

Refinancing isn’t free, so it pays to weigh up the true cost of switching to a new lender or loan. Typical refinancing costs include:

• Loan application fees
• Property valuation fees
• Settlement or legal fees
• Government charges

Some lenders offer cashback deals to help cover these costs, but not all do. And those that do may charge a slightly higher rate so you’ll want to do the maths. Bottom line: The long-term savings from a lower rate should clearly outweigh the short-term costs of refinancing.