You need to carefully consider the various refinancing loans available and ensure that you choose the best option for your needs. This is something Your Local Finance broker can help you with.

It is important to find out the costs, if any, associated with switching from your current loan.

You should be aware that once you have signed with a refinancing lender they may alter the conditions, such as increasing rates or fees.

You should thoroughly familiarise yourself with all the conditions of the contract before signing, and seek advice if uncertain.

Switching fees can be calculated as a percentage of the loan amount, or a specific fee might be set. There could also be establishment (application) fees, legal and valuation fees, and exit fees that may associated with a standard loan transfer.

The total cost of these fees often exceeds $1000, but may reach $10,000, often taking up to 18 months of repayments for the fees to be paid, and in some cases it could take as long as 10 years.

You should subject any refinancing loans to careful scrutiny to make sure that it is worth switching.

Honeymoon rates of 6-12 months are generally best avoided, as rates may rise dramatically after the honeymoon period expires.

It is a good idea to use the online calculator at <insert Your Local Finance> to determine rates over time.

You should compare the cost of the new loan (after subtracting any fees and charges) with your current loan to see if it is worth switching.

Strategies for choosing whether to refinance include:

• Be wary of loans (especially honeymoon loans) that have exit fees.
  
  
• Speak to you lender.  Ask your own lender for a better rate. This saves you establishment and exit fees. The lending industry is so competitive they may agree, and you never ever know if you never have a go! If you don’t like speaking to your bank, Your Local Finance Broker may be able to on your behalf.
  
  
• Ask building societies and credit unions about their refinancing loans.
  
  
• They often have better rates than the major banks and other large lenders, and usually don’t charge account-keeping fees.
  
  
• Check if there is an establishment fee, it’s usually between $400 and $800. If it is a percentage of the loan, ask what the percentage is.
  
  
• Ask what the total cost of the loan is over its term.
  
  
• Try to find loans with special offers such as no application fees, remembering to also check that the other fees are low and that there are no exit fees.
  
  
• Always find out what the rate will be after the honeymoon period expires, and whether it will remain the same margin over the Reserve Bank’s official interest rate, over the lifetime of the loan.
  
  
• You usually need to take out mortgage insurance if you borrow more than 90 percent of the property value. This may make refinancing an expensive option. Try to minimize your loan/value ratio. Your Local Finance Broker can help you with this.
  
  
• Some lenders may provide professional package discounts that could decrease the rate by up to 0.5 percent, if your income is high enough.
  
  
• Speak to your mortgage broker about the benefits, costs and conditions of each refinancing loan, and any concerns or needs you think you may have.
  
  
• Find out the AAPR (average annualized percentage rate). Every lender is legally required to disclose its AAPR, which is calculated as the total annual cost of a loan with fees inclusive. It is also termed the “comparison rate” and is determined by the loan amount of $150,000 over 25 years. The AAPR is an excellent method of comparison between loans.
  
  
• Consider your interest rate. Will you switch to a fixed, variable or split (fixed/variable) interest rate loan?
  
  
• You should compare the basic loan rate with the standard variable rate, which often has a redraw facility, and whether costs of switching are worth the benefits.