Borrowers are tackling rising interest rates in different ways. Some are changing to fixed rates, while others are considering refinancing. As little as a 0.5% rate reduction can mean that you will be able to save money. But for a small loan it may take a while for the rate reduction to make up for refinancing costs.

Some unscrupulous lenders may try to persuade you to choose refinancing products that may make your financial position worse. These products may include a line of credit, an offset account or a free credit card (this is usually free for the first year only); they may have higher interest rates than a standard home loan. People also refinance to avoid fees associated with cheque accounts and ATM machines.

Before deciding to refinance you need to know what all the costs will be. There will usually be up-front government stamp duty, and there are often application fees, discharge fees and mortgage insurance. Be aware of the double stamp duty refinance trap.

You may have to pay a registration fee of around $100 - $200. There may be property valuation fees of up to $350, and application documentation, settlement and handling fees of up to $1000. The total cost of all these fees and charges is often in the range of $1000-$3000.

You should find out what upfront fees and charges will apply before you sign the contract. Also find if there are any penalties for early repayments and discharge of the loan.

Borrowers with small deposits are generally required to take out mortgage insurance to protect the lender if you default on the loan. The insurance can be as high as 1% of the value of the property.

Refinancing for a longer-term loan is generally not a good option as it will cost you more in interest. Paying off your loan faster is often the cheapest option.

If you are serious about refinancing, but are unsure about some issues, feel free to contact us at Your Local Finance.  Our experienced team of refinancing mortgage brokers can help make sure you take all the right steps and minimise any risk to you.