Three Questions to Ask Before Refinancing Your Home Loan

Refinancing your mortgage can be a smart financial strategy, one that reduces your interest rate, unlocks home equity, or consolidates your debts. But with benefits come costs, and not every refinance results in long-term savings. That’s why it’s crucial to evaluate your personal circumstances carefully before proceeding.

To ensure you’re making an informed decision, here are three essential questions to ask before refinancing.

1. Has Your Financial Situation Changed Since You Took Out Your Loan?

Your current financial position plays a major role in how successful a refinance will be. When applying for a refinance, your lender reassesses everything:

• Your income and employment history
• Any changes in household size or dependents
• Ongoing expenses and debts
• Credit score and loan repayment history
• Current property value and equity position

If your financial situation has improved, such as receiving a pay rise, paying off other loans, or becoming dual-income—it may boost your borrowing power or secure you a better deal.

On the flip side, if you’ve experienced a reduction in income, taken on new financial commitments, or become self-employed, it may impact your approval prospects or the interest rate offered.

Additionally, consider life changes on the horizon: Are you planning to start a family? Downsize or retire? Launch a business? These events can impact your ability to service a loan in the long term and should be factored into your refinancing decision.

2. Will Refinancing Really Save You Money?

Lower interest rates are appealing, but refinancing isn’t always cost-effective. In fact, the true cost of switching can catch many borrowers by surprise.

Typical costs include:

• Exit fees from your current lender
• Break costs for fixed-rate loans
• Application or establishment fees for the new loan
• Valuation, legal, and discharge fees
• Stamp duty (in rare cases)
• Lenders Mortgage Insurance (LMI), if borrowing above 80% LVR

It’s essential to crunch the numbers. A seemingly small interest rate cut might not justify thousands in switching costs, particularly if you plan to sell or pay off the loan soon.

Before refinancing, run a break-even analysis: How long will it take for your savings to outweigh the upfront costs? If the answer is several years, but you intend to sell or restructure your finances sooner, it may not be worthwhile.

3. How Long Do You Plan to Keep the Property?

Refinancing makes the most sense when you’re planning to hold onto the property for the medium to long term.

If you’re likely to sell within a couple of years or you’re nearing the end of your mortgage term with only a small balance left—the time, effort, and expense of refinancing may not deliver real benefits.

For example, someone with five years left on a mortgage may find limited long-term savings from refinancing, especially after factoring in break costs and new loan fees. In contrast, someone with 15–20 years remaining might benefit significantly from a better rate or improved loan features.

Always weigh up your property and life goals when considering refinancing. Ask yourself whether the timing aligns with your broader financial strategy.

Need Expert Advice Before Making a Move? 

At Paris Financial, we understand that refinancing is a big decision, one that needs to be tailored to your personal situation and long-term goals. Our in-house Mortgage Broker can walk you through your options and ensure you have a clear picture of both the benefits and costs involved.

Whether you’re looking to reduce interest repayments, access equity, or restructure your loan for lifestyle changes, we’re here to guide you every step of the way.

Call our team on (03) 8393 1000 for personalised advice and a no-obligation consultation.

Making refinancing decisions without answering the right questions can lead to unexpected costs and limited benefits. Be sure to ask the right questions to ask before refinancing to protect your financial wellbeing.

Hayley Crow is a Credit Representative (CR No: 486223) of Buyers Choice Licencing Pty Ltd ACN 626 172 281 (Australian Credit Licence No: 509484)