Your first home loan was a starting point, and it does not have to stay the same for the whole term. For many Angle Vale first home buyers, a refinance is worth a look once the early years have passed, but it only pays off when the numbers add up.
Most first home buyers ask the same thing: is it worth the hassle, or should I just stay put? This article gives you the good and the bad so you can decide with a clear head.
What Are the Pros of Refinancing a First Home Loan?
The main benefit of a refinance is the chance to move to a lower interest rate or a loan that suits your life now. Your first loan may have been chosen when you had a smaller deposit and a shorter borrowing history, so your situation may look different today.
The upsides usually come down to a few things:
- A lower rate, depending on your deposit size, your equity and the lender, which can reduce your monthly repayments.
- Features you did not have before, such as an offset account or redraw facility, so spare cash works against your loan balance.
- A choice between a variable interest rate and a fixed interest rate that fits your budget today.
- Room to improve cashflow if your costs have gone up since you moved in.
If your property has grown in value since you bought, you may also have more equity. That can open up options, though it is a separate decision from chasing a lower rate. A loan health check is a good first step because it shows where your current loan sits before you decide anything.
What Are the Cons and Costs of Refinancing?
Refinancing can cost money and effort, and a lower rate on paper does not always mean you come out ahead. You need to weigh the costs against the saving before you apply.
Some lenders charge fees to close your old loan or set up the new one. If you are on a fixed rate, leaving early may trigger break costs. A new lender will also want a property valuation and fresh paperwork, so you will need to go through a full assessment again. If your equity is still thin, your options may be narrower than you hope.
There is another trade-off that catches people out: stretching the term. Starting a new 30-year loan lowers the repayment, but you stay in debt for longer.
Refinancing Example: Lower Repayments Versus a Longer Term
Resetting your loan term can cut your monthly repayment, but you pay interest for more years. The example below shows how that works.
Consider a buyer in Angle Vale who has 28 years left on a $400,000 balance. For this illustration we use an example rate of 6.75% p.a. This is not a current market rate. Repayments on that loan come to about $2,653 a month.
They look at refinancing and a lender offers a new 30-year term. At the same illustrative 6.75% p.a., the repayment drops to about $2,594 a month. That is roughly $59 a month less, which looks appealing.
The catch is that they would now be paying for two extra years. Their broker suggests an alternative: refinance, but keep the repayment at the old level. That keeps the original payoff timeline, and the extra amount goes straight to the balance. The buyer takes this option, and the outcome is a new loan with updated features and no extra years added to the debt.
You can test your own figures with our mortgage repayment calculator.
Coming Off a Fixed Rate: When Is the Right Time to Refinance?
The right time to refinance is usually when your fixed rate period is ending, or when your circumstances have changed and your loan no longer suits you. Review your loan well before the fixed term ends so you can compare lenders. Refinancing once the fixed term has finished usually avoids break costs. Leaving earlier may trigger them, so ask your lender for a break cost estimate first.
When a fixed term finishes, many loans move onto the lender's standard variable rate unless you choose otherwise. That rate may be higher than what you could find elsewhere, so it pays to look around early. Our page on fixed rate expiry explains what to check before your term ends.
Other good moments to review your loan include a pay rise, a change in household income, or a plan to buy again. If you are thinking about using your equity toward an investment, our investment loans page covers that path. Any move like that has its own risks, because you would be borrowing more against your home.
How Do You Know if Refinancing Is Right for You?
Refinancing is right for you when the saving and the new features outweigh the costs of switching. A broker can compare lenders and run the numbers before you commit to anything.
Start by asking yourself why you want to refinance. If it is a lower rate, work out how long it would take for the saving to cover any fees. If it is cashflow, check that you are not just extending the loan term. If it is features, decide whether you would use an offset or redraw in real life.
Our refinancing service walks you through each step, from the first conversation to settlement. If you bought through our first home buyer team, we already know your story, and if you are new to us, the Angle Vale team is happy to start fresh.
If you have been wondering whether your first home loan still suits you, call one of our team or book an appointment at a time that works for you. We will go through your loan with you, in plain language, and tell you honestly whether a refinance makes sense.
Frequently Asked Questions
Is it worth refinancing a first home loan?
It can be, if the saving from a lower rate or the value of new features outweighs the switching costs. A broker can compare options and run the numbers for you before you decide.
What are the downsides of refinancing?
You may face fees, break costs if you are on a fixed rate, and a full application with a new valuation. Resetting to a longer loan term can also lower repayments but keep you in debt for more years.
When should I refinance if my fixed rate is ending?
It is wise to review your loan before the fixed term finishes, so you have time to compare lenders and can switch when the term ends. Leaving before then may trigger break costs.
Can I refinance and keep my repayments the same?
Yes. If you move to a lower rate or a new loan but keep paying the same amount, the extra goes toward your balance. This helps you avoid adding years to your loan term.
