You notice another home loan with a lower rate and wonder whether it is time to refinance. The difference in rates is worth investigating, but it is only one part of the decision. To compare properly, include the cost of leaving your current loan and the terms of the one you might move to.
List the switching costs
Depending on your loan and lender, refinancing may involve discharge, application, valuation or settlement-related fees. If you have a fixed-rate loan, ask whether ending it before the fixed term finishes could trigger a break cost; it can depend on the loan terms and circumstances at the time. Request a current payout figure and a written breakdown rather than relying on a rough estimate.
There may also be costs associated with setting up the replacement loan or changing the security arrangements. The details vary, so check with both your current lender and the prospective lender about which charges apply and when they are payable. Include any costs you would pay upfront as well as those added to the new loan.
Compare the loan beyond rate
Check the new loan’s fees, repayment type and features against what you have now. An offset account, redraw facility or flexible extra repayments may matter to you, but their rules can differ between loans. Also check whether the rate being compared applies to your loan-to-value ratio, loan size and other relevant conditions.
Estimate the overall difference
Compare the total costs of switching with the potential difference in repayments over a period that makes sense for your plans. A calculator can help you explore scenarios, but its result depends on the inputs and assumptions you use. If you may sell, move or refinance again soon, include that timing in your thinking rather than treating the rate difference as a guaranteed saving.
Before deciding, put the current loan and proposed loan side by side: rate, fees, features, switching costs and any conditions that could affect you. That simple comparison makes it easier to see whether refinancing addresses a real need, rather than just offering a more attractive headline rate.