Thinking about refinancing your mortgage? Check these 3 things before calling the bank

If you are considering refinancing your mortgage, there are a few important factors to consider before contacting your bank. First, make sure you compare your current interest rate to what is being offered by other lenders. Keep in mind not only the interest rate but also any associated fees such as discharge fees, early repayment penalties, and monthly or annual fees.

Use the free Moneysmart mortgage calculator to estimate your potential savings from switching lenders. Second, check if your property value has changed recently. Banks will assess your home loan based on the loan-to-value (LVR) ratio, which is the percentage of the property value you are borrowing. If you need to borrow more than 80% of your property's value, you may be required to pay mortgage insurance, which can cost thousands of dollars.

Additionally, if you bought your home in the last 12-18 months, you should be especially cautious, as property values have increased significantly in recent years. Finally, consider whether you can comfortably afford higher repayment rates. Australian lending rules require banks to assess your capacity to repay your home loan, including a "3% minimum serviceability buffer."

After the latest rate hike, lenders will likely assess repayment rates of 9.6-10%, so it's important to ensure you can meet these requirements. Once you have a clear understanding of these factors, you can contact your bank or a mortgage broker to discuss your options. Banks may be willing to modify your loan, such as making it interest-only for a period or extending the loan term, but be aware of the potential drawbacks, such as paying more interest over time.

It's advisable to seek help if you're concerned about the latest rate rise or your ability to meet repayment requirements. Don't wait until you're struggling to find assistance; you can contact your bank's home lending team or the National Debt Helpline for free advice.