Is Your Home Loan Collecting Dust? The Smart Guide to Refinancing

Refinancing your home loan can feel like an administrative headache, but it is often the single most effective financial lever a homeowner can pull. Whether you’re looking to combat rising cost-of-living pressures, pay off your loan sooner, or fund a renovation, the right strategy is essential.

As a Mortgage Manager, we see firsthand how a well-timed refinance can save Australians thousands of dollars in interest and provide genuine peace of mind. Let’s look at the practical strategies every homeowner should know.

Understanding the Mechanics

Refinancing simply means replacing your current mortgage with a new one. While a lower interest rate is the headline goal, you must look at the overall structure. There are several factors to consider:

• Interest rates & Comparison Rates:  The interest rate is what you pay; the Comparison Rate includes the fees and gives you the "true" cost of the loan. Always watch the difference between the two.

• Loan term: Most loans are over 25 or 30 years. Refinancing to a fresh 30-year term will lower monthly repayments but likely increase the total interest you pay. Keeping your original finish date (e.g., refinancing a 30-year loan after 5 years into a new 25-year term) is the secret to real savings.

• Offset Account vs. Redraw: Do you need a transactional Offset Account linked to your mortgage to save on interest, or is a simple Redraw facility enough? Features cost money, don't pay for what you don't use.

• LVR (Loan to Value Ratio): If your home’s value has risen, your LVR may have dropped (e.g., below 80%). This unlocks "lower tier" interest rates and removes the need for Lenders Mortgage Insurance (LMI).

  
  

Choosing the Right Strategy

There’s no one-size-fits-all approach to refinancing. Here are some common options:

1. The "Rate & Feature" Review

ou refinance to get a better interest rate or better features without increasing your debt. This is ideal for borrowers whose introductory "honeymoon" rates have expired or who are stuck on a high Standard Variable Rate (SVR).

2. Accessing Equity ("Cash-Out")

If you have built up equity (your home value minus what you owe), you can refinance to release cash. This can be useful for funding renovations, buying an investment property, or purchasing a new car at home loan rates (approx. 6%) rather than personal loan rates (~10%).

3. Debt Consolidation

Rolling high-interest debts (credit cards, car loans) into your lower-interest home loan. However, While monthly cash flow improves, spreading a 5-year car loan over a 30-year mortgage term can cost more in the long run unless you commit to paying the mortgage down aggressively.

4. Fixed vs. Variable

Fixed-Rate: You typically lock in a rate for 1 to 5 years. This offers budgeting certainty, but usually comes with limits on how much extra you can pay off during the fixed term.

Variable Rate: The rate moves with the RBA cash rate or lender funding costs. It offers flexibility—usually allowing unlimited extra repayments and full use of Offset accounts.

Split Loan: The "best of both worlds"—fixing 50% of your loan for certainty and keeping 50% variable for flexibility.

When Is the Best Time to Refinance?

Timing can make a big difference in how much you save. Here are some key moments to consider:

• Your fixed rate is expiring: The "Fixed Rate Cliff" is real. Don't roll automatically onto the lender's high Revert Rate.

• Your property value has soared: A new valuation could push your LVR under 80% or 70%, qualifying you for significantly cheaper rates.

• Your financial situation has changed: Perhaps you've become self-employed or your credit score has improved. As a Mortgage Manager, we can often help where major banks say "no."

  
  

Common Pitfalls to Avoid

Refinancing can be a great tool, but it’s easy to make mistakes that cost you money or cause stress. Here are some pitfalls to watch out for:

• Ignoring "Break Costs": If you are on a fixed rate, leaving early can incur Economic Costs (Break Costs). Always ask for a quote before switching.

• Discharge & Application Fees: Ensure the tax savings and interest reduction outweigh the government discharge fees and new lender application fees.

• "Rate Chasing" without looking at LMI: If refinancing pushes your LVR back above 80%, you might get hit with Lenders Mortgage Insurance again, wiping out any interest rate savings.

How Folio Financial Services Can Help

Navigating the mortgage market is complex, but you don’t have to do it alone. As a Mortgage Manager, Folio is unique. We aren't just a broker who hands you off to a bank; we manage the loan process from start to finish, often with access to unique funding lines, "Alt Doc" options for the self-employed, and solutions for Expats.

The Folio Advantage:

• Holistic Analysis: We assess your LVR, equity position, and cash flow goals.

• Diverse Options: From standard prime loans to SMSF lending and solutions for those with credit impairments.

• Direct Management: We are your point of contact for the life of the loan—real people, not call centres.

  
  

Ready to stop overpaying? Refinancing is a powerful tool to realign your mortgage with your life goals.

Contact Folio Financial Services today specifically to request a free "Health Check" on your current loan structure.