Five simple steps to get the best deal on your mortgage refinancing

Step 1: Finding the best loan

Every mortgage comparison website has what I call a “bias button” that you have to enable or disable to get the true cheapest loan list. This may be a checkbox at the bottom of the list that says: “Show sponsored links first” or “Yes, only show results that link to a quote page”. Or you might need to “check” a different option, such as “Show all available mortgages”.

If you don’t do this first, you will get a list of loans based on the site’s commercial arrangements, rather than your requirements.

Step 2: Searching for right loan

The “investment” versus “home” loan parameter that you typically have to input is easy… do you live in the property or not?

But the next choice – fixed rate or variable rate – gets a little more tricky.

Today, fixed-rate mortgages are mostly lower than variable rates… but be aware that choosing a fixed rate may lure you into a product that after a set period of time defaults into a loan with a much higher variable rate.

I advocate fixing interest on half of the loan, in part because usually it is only the variable portion that carries a quality mortgage offset account. These accounts can save you a fortune in interest.

Search on both “fixed interest” and “variable” rates to find the loans that would give you the cheapest fixed/variable split.

Step 3: Use the comparison rate

Don’t make the mistake of looking at the advertised rate – it is the comparison rate that captures all up-front and ongoing fees and gives you an “apples-with-apples” comparison.

Bear in mind that lenders’ mortgage insurance, optional fees such as late payment or redraw and end-of-loan fees are excluded.

It is usually the interest rate, not the fees, that make the biggest difference to your mortgage costs.

Step 4: Get the ‘key facts sheet’

Identify, say, the five best loans for you, then get the key facts sheet from each lender. This will give you all the features in a standard format, for easy cross-referencing.

One thing you should not go without is a mortgage offset account. Check that all variable rate loans/components carry one.

Next, you need to check it is a “real” offset account. Go to APRA’s list of authorised deposit-taking institutions – those that can offer genuine and not “fake” offset accounts.

“Fake” offset accounts are simply redraw facilities in disguise.

Parking money “inside” a mortgage involves paying more than the minimum payments into the loan itself. It relies on redraw and trusts that your bank will let you have the extra money sitting in your loan account, if and when you need it.

However, having your cash “alongside” your loan uses a separate but attached offset account to effectively quarantine your extra payments, giving you full flexibility of access.

Step 5: Set the loan time period

Take the loan over the same time period you have remaining on your current mortgage.

The biggest refinance mistake people make is to secure a lower interest rate but take a new mortgage over a fresh 25 or 30 years.

Choose an equal term to your existing loan and also keep your repayments at their existing level and you will shave years off your mortgage and save a small fortune in interest.