While my friend will save a lot of money and be mortgage free faster, not all refinance deals will save you money. If you are looking to refinance your home loan, you should consider all the costs and benefits such as:

Exit Fees - Depending on how your current mortgage is structured, you may have to pay significant fees before you leave your bank. This could mean that you are better off staying with your current bank for a little while longer

Reversion rates - Make sure you understand what your ongoing rate will be. The lowest rates on offer are often on either short term fixed loans (3 years or less), or on honeymoon variable deals (this means that they offer you a big discount but it's only for the first year or two). Somewhere in the small print, there will be a 'reversion rate'. This shows you what you will be paying once the discount or fixed period has expired. To avoid this, try and find banks who will offer you a competitive discount for the life of the loan. There is no guarantee that the deals you can get in 3 years will be competitive, so why settle for a discount that expires at that time?

Making the minimum payment - When you refinance your mortgage, in most cases, the bank will automatically offer you a new home loan at the maximum term of 30 years (unless you request a shorter term). The minimum payment on the mortgage documents is designed to pay the home loan off in 30 years, but you have the option to pay more than the minimum.

The loan documents my friend received from his new bank were for a term of 30 years. He could pay as little as $1,622 per month, rather than the $1,950 he has chosen to pay. If he decided to make only the minimum payment, he would have an extra $3,932 per year to spend on something other than mortgage repayments.

Reducing your payments by over $300 a month may sound tempting, but if my friend were to do this, he would extend his loan term from 25 years to 30 years. So while he is paying less every month, he is doing so for an extra 5 years. If he had done this, then the refinance would have cost him around $17,000, as shown below: