If you bought your first home a while ago, your original rate may no longer suit you. Checking it takes less time than most people expect, and the result could lower your repayments.
Many first-time buyers sign up to the loan they were offered at the time and never look at it again. Lenders often reserve their sharper pricing for new customers, so a loan that was well priced on day one can slip behind. If you live in Gunnedah, in north-west NSW, a local broker can compare your current loan against a wide range of lenders for you.
When Should a First Home Buyer Refinance?
A first home buyer should consider a refinance when their rate has drifted above what lenders are now offering, their fixed rate is ending, or their finances have changed. A change in income, equity or loan features can also be a trigger.
It helps to have a few things in hand before you start. These are your current rate, your loan balance, your remaining term and a rough idea of what your home is worth. Your equity grows as you repay the loan, and a stronger equity position can open up more lender options, depending on the lender and your circumstances. If you have less than 20 per cent equity, though, keep in mind that it can also add a major cost, as explained below.
A loan health check is a sensible first step. It compares your current loan with other options so you can see whether a switch is worth pursuing. Our refinancing page explains how we approach it.
What Does a Lower Rate Look Like in Repayments?
Even a small drop in your interest rate can reduce your repayments by a meaningful amount each month. The size of the saving depends on your loan amount, your remaining term and the rate gap.
Here is an illustrative example. Consider a first-time buyer with $450,000 left to pay over 30 years. They are on a hypothetical rate of 7.25% p.a., which gives principal and interest repayments of about $3,070 a month.
After a loan review, they find a lender offering the illustrative rate of 6.75% p.a. on the same balance and term. Repayments fall to about $2,919 a month. That is roughly $150 less each month, or around $1,800 over a year.
The trade-off is cost. If the buyer pays a discharge fee or an application fee, those reduce the saving, and a longer term would add interest over time. They decide to keep the repayment at the old level of about $3,070 a month, which pays the loan down faster while keeping the lower rate. Their cashflow is no worse, and more of each payment goes to the balance. These figures are illustrative only. Use a repayment calculator with your own numbers to see how it works for you.
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Coming Off a Fixed Rate: What Are Your Options?
When your fixed rate ends, your loan usually moves to the lender's variable rate, which may be higher than what other lenders would offer you. You can stay put, negotiate with your lender, or move to a different lender.
The weeks before expiry are the time to act. Our fixed rate expiry page covers what to look at in that window. Once the fixed term ends, you can usually switch lenders without paying break costs. Leaving earlier can trigger break costs, so it is worth getting a figure from your lender first.
You can also choose between a variable and a fixed rate at this point. A variable rate can move up or down and often allows extra repayments. A fixed rate gives you certainty for a set period, but it can limit extra repayments and may cost you if you leave early. Which suits you depends on how much certainty your budget needs.
Offset and Redraw: Features Worth Comparing
An offset account and a redraw facility both help you reduce interest, but they work differently. An offset account is a separate transaction account whose balance reduces the interest charged on your loan. Redraw lets you access extra repayments you have already made, which lenders may limit or charge for.
With an offset account, your savings stay separate and fully accessible. With redraw, the extra money sits inside the loan. Some lenders attach a higher rate or an annual package fee to loans with an offset account. If your savings balance is small, that fee could outweigh the interest you save.
If you are a first home buyer building up savings, it is worth asking whether you will use the feature enough to justify what it costs. Our first home buyers page has more on loan features at this stage.
Costs to Weigh Before You Switch Lenders
Refinancing can come with discharge fees from your old lender, government mortgage registration and discharge fees, application or valuation fees from the new lender, and lenders mortgage insurance (LMI) if your new loan is above 80 per cent of your property's value. LMI is not transferable between lenders, so you may have to pay it again. This can outweigh the rate saving, so ask for a quote first. Fees vary by lender, so ask for the full list before you commit.
Some lenders offer incentives for switching, but these may come with conditions. If you move to a loan with a longer term, your repayments might fall while the total interest you pay rises. A lower rate is only one part of the picture. Compare the total cost over the time you expect to keep the loan.
If your property value has changed, the lender will usually arrange a valuation, which affects how much you can borrow against it. If you want to borrow more, for example to access equity for a renovation or an investment, your borrowing capacity will matter too. Borrowing more means a larger loan and more interest over time, so it should suit your longer-term plans.
How the Refinance Process Works
The refinance process usually takes a few weeks from application to settlement. It starts with a review of your current loan, then moves to choosing a lender, lodging your application and settling the switch.
We gather your recent payslips, loan statements and details of your living costs, then compare lenders for you. Once you choose a loan, the new lender assesses your application and arranges a valuation. When approved, your new lender pays out your old loan and your repayments begin on the new one. Your broker can keep you updated at each stage, and our Gunnedah mortgage broker team is happy to explain any step along the way.
Frequently Asked Questions
When should a first home buyer refinance?
Consider refinancing when your rate has drifted above what lenders are offering, your fixed rate is ending or your finances have changed. A loan health check can show whether a switch is worthwhile.
Can I refinance when my fixed rate ends?
Yes. Once the fixed term ends, you can usually switch lenders without break costs. Leaving earlier can trigger break costs, so ask your lender for a figure first.
What costs come with refinancing?
Costs can include discharge fees from your old lender, government mortgage registration and discharge fees, application or valuation fees from the new lender, and lenders mortgage insurance (LMI) if your new loan is above 80 per cent of your property's value. LMI is not transferable between lenders, so you may have to pay it again, which can outweigh the rate saving. Ask for a quote and the full list of fees before you commit.
Is an offset account worth it when I refinance?
It depends on your savings balance. Some lenders attach a higher rate or annual fee to loans with an offset account, which can outweigh the interest saved if your balance is small.
