A lower refinance repayment is not always a cheaper loan
A lower monthly repayment can help cash flow, but it does not prove that refinancing saves money overall. If a borrower has 22 years left and replaces that loan with a new 30-year term, the extra repayment years may increase total interest even when each payment is smaller. The exact outcome depends on the rates, balance and fees.
Moneysmart warns borrowers to be firm about the desired new loan length when switching, because a longer term means more interest. It also recommends checking lender's mortgage insurance where relevant, break fees, discharge and application charges, and how long it takes to recover switching costs.
Separate monthly cash flow from lifetime cost
Start with the current outstanding balance and remaining term. Obtain a current repayment schedule and a written quote for the proposed refinance. Compare repayments and total interest over the same decision horizon, while clearly showing any difference in term rather than hiding it in a lower monthly number.
A comparison rate, offset, redraw and extra-repayment rules may change the value of an offer. Advertised rates are not personalised offers, and future variable rates cannot be guaranteed.
Check three numbers before switching
Check: 1. Years remaining on the existing loan. 2. Total repayments and interest under the proposed loan, including its actual term. 3. Switching fees and estimated break-even time. Moneysmart's mortgage switching calculator can help with an indicative comparison, but it is a model, not a prediction.
Ask the existing lender whether it can offer a better deal before switching. If a lower payment is essential for affordability, weigh that benefit openly against possible additional lifetime interest.
Decide with both schedules in view
BV Finance can help compare eligible refinancing structures and their cash-flow impact. Rates, fees and approval depend on the actual lender offer and individual assessment.
Sources and practical tools
General information only. This is not financial advice. Loan options and eligibility depend on your personal income, liabilities, assets and lender assessment criteria.
Comments