With the official cash rate at it’s lowest point ever, it’s never been cheaper to pay off your mortgage. If you’re in a position to refinance, you can make further savings but here are some things to consider before you do.

Refinance and consolidate

Banks are fighting hard for business, so capture the moment and get a better deal on your mortgage.

Shop around, see what else is out there and consider switching if you find a much better deal than your current one. If you’re paying higher interest rates on other debts – think credit cards, car loans, personal loans- look to roll them into your mortgage if you do refinance, as it will save you thousands of dollars to pay them off at a cheaper rate.

However…

Don’t blindly jump ship for a better interest rate. Sure, you can save money in the short term, but that won’t mean much if the new loan isn’t suited to your situation. In fact, you may end up out of pocket.

Some banks are now offering repayment interest rates of 1.99%, but the catch is that you have to fix your loan for 5 years. That’s all good, until you want to refinance in two years, or sell your property, or rates go further down and then you’re stuck. The fees you pay to break a fixed rate agreement can run into the tens of thousands of dollars and far exceed the savings you made on interest.

A refinance can mean inconvenience

Before moving banks, you need to add up the fees and other costs for switching. And then there are the creature comforts- if you are with a Big 4 bank, you are probably used to a great online space or app, plenty of ATMs and the option to visit bricks and mortar branches if you need to. Refinance with a minor lender and you could be left with an inferior website, no ATMs and no branches. When you call them, your call may be forwarded offshore to someone in a foreign call centre, reading off a script and struggling to understand what you’re saying.

Don’t want to switch?

If you are happy with everything about your lender except the interest, simply call them and ask for a better deal. 

Banks need new clients and reserve their best deals for new customers. So see what better deals you could get by refinancing as a new customer of a different bank, then go back to your current lender and tell them to match it or you’ll leave. You may find they come to the party to keep your business. 

Job’s not quite done

When you do get a better deal, don’t reduce loan payments. Compound interest means every little bit extra that you pay each month will make a big difference long term. You will save thousands of dollars and several years on your mortgage.