Sort Out Your Finances

1 May 2020

Sort Out Your Finances


Is now a good time to refinance your home loan?


The strict coronavirus restrictions have changed the way we all live and work both at the moment, and the economic fallout is likely to continue long after the public health issue has subsided.

Interest rates in Australia are also at record lows. All of these factors make it a good time to consider whether or not you should refinance your home loan. Ultimately, this decision depends on your individual circumstances, but here are some reasons why refinancing could be a good idea.

Reasons to refinance your home loan

Good reasons to refinance your home loan now include:

  • getting a lower interest rate.
  • lowering your repayments if your circumstances are likely to change.
  • consolidating your debts.

We’ll now look at each of these reasons in some more detail.

To get a lower interest rate

According to the most recent figures from the Australian Bureau of Statistics, the average Australian mortgage is $500,000. It’s important to understand that even a small difference in loan interest rates can make a big difference to your regular repayments and to the total amount you’ll pay over a standard 25 or 30-year home loan term.

The table below shows both the monthly repayments and the total repayments over the life of a $500,000 mortgage over 25 years at three different interest rates: 2.8%, 3.8% and 4.8%.[1]

  2.8% 3.3% 3.8%
Monthly repayment ,319 ,450 ,584
Total interest on 0,000 home loan over 25 years 5,812 4,942 5,285

When you’re looking at home loan interest rates, it’s important to understand that lenders typically advertise two rates on their loan products: the nominal rate and the comparison rate. The nominal rate is lower, but it doesn’t include the cost of loan fees and charges. The comparison rate in the other hand is higher, but it does include most loan fees and charges.

Always use the comparison rate when evaluating different loan products. Lenders in Australia are legally required to tell you the comparison rate before you take out a loan. Many home loan providers in Newcastle are now offering comparison rates of less than 3%.