Refinancing can give you a rate cut on the mortgage - but do your homework first

As expected the RBA kept its cash rate unchanged at 2.50% in June.

The last time the RBA cut rates was in August 2013 and according to Paul Bloxham, Chief Economist, Australia & New, Zealand, HSBC Bank Australia Limited, it appears that the federal bank is in no hurry to change its position in the short-term, although an expected bounce in the Chinese economy could prompt a move later this year.

While the RBA has decided to leave rates on hold, homeowners can still give themselves a rate cut on their mortgage repayments by refinancing into a more competitive home loan.

“Comparing your home loan to the competition is always a smart move as there are hundreds of variable mortgages available and in some cases rates are more than 0.5% lower than this time last year. Three-year fixed rates have also dropped down too,” says Matthew Brown, General Manager of mortgage broking firm, Your Broker.

Refinancing into a new home loan can result in savings but it also involves costs, and borrowers must consider the expenses before deciding to swap lenders warns Brown.

Switching to a cheaper home loan can shave monthly repayments, while it’s also an opportunity to secure savings on the fees and charges that add to the cost of home ownership.

One hitch with refinancing is that it might involve additional costs such as establishment loan fees, while you might need to fork out for lenders mortgage insurance (LMI) if your new loan represents more than 80% of the value of the property.

“It’s for this reason you’re often best to consult with a mortgage broker who will help you find a suitable home loan which puts you in front faster with your repayments,” says Ron Hodge, CEO of cash back provider Your Share.