There are a range of ‘whys’ when it comes to refinancing. You may want to pay down your loan faster, minimise your monthly costs or have more certainty of your repayments in the future. While not the only factor to consider when deciding on a mortgage lender and product, reducing your interest rate can assist you in maximising your refinancing goals.
So, how much does 0.5% save on the life of your loan?

Miriam has a mortgage of $1,000,000 with a remaining term of 20 years. After approaching her lender, the lowest rate they can offer her is 2.59%. She has seen a rate of 2.09% advertised with another lender for a similar product – is it worth Miriam the costs of a refinance for a 0.5% reduction?

Current Mortgage AmountRemaining TermInterest RateMonthly RepaymentTotal Mortgage Interest
$1,000,00020 Year Term2.59%$5,343$282,316
$1,000,00020 Year Term2.09%$5,102$224,377
Interest Savings$241$57,939
Mortgage A
Current Mortgage$1,000,000
Remaining Term20 Year Term
Interest Rate2.59%
Monthly Repayment$5,343
Total Mortgage Interest$282,316
Mortgage B
Current Mortgage$1,000,000
Remaining Term20 Year Term
Interest Rate2.09%
Monthly Repayment$5,102
Total Mortgage Interest$224,377
Difference In Interest
Monthly Repayment$241
Total Mortgage Interest$57,939

Based on these numbers, a reduction of 0.5% on her mortgage rate would mean Miriam would pay 20% less interest over the life of her loan if she were to refinance to the new lender. While the savings alone are appealing, before making the decision to refinance you should balance the costs against potential savings and desired loan features:

While lenders can offer appealing advertised rates, you cannot underrate the importance of the comparison rate.

Balance the costs from your outgoing and incoming lenders, as well as government charges, against the potential savings.

Speed up your application by ensuring you have personal and financial documentation available for your new lender to assess.

Understand the current property market and its effect on the LVR of your property – it could score you a lower rate.

Be aware of the different sorts of refinance and what will help you achieve your goals and suit your financial situation.

There can be a lot to be across when refinancing. A credit advisor is your best resource to help you will all of these steps.