Homeowners can refinance a home loan for a number of reasons. Refinancing is primarily used to secure a lower interest rate or a more suitable home loan. It’s important to understand the refinancing process to avoid high fees or taking on a more-expensive mortgage.
In this guide you’ll learn:
Refinancing is the process of securing a new mortgage to pay off your existing one. There are several reasons to refinance but the two most common are:
Often refinancing is with the same lender but it can be with a different one as well. The home loan market in Australia is competitive - if your current lender won’t give you a better deal, there are usually several others who will.
However, refinancing is not right for everyone, and it’s important to understand the process and pros and cons of refinancing before making a decision.
Before you refinance you should be certain you’ll benefit from doing so. To weigh up the decision, start by comparing possible benefits with possible costs and risks.
The most common benefits of refinancing your home loan include:
|Current home loan||Refinancing home loan option 1||Refinancing home loan option 2|
Home loan amount (principal)
Total interest and fees payable
Savings from refinancing**
Your equity is the difference between your home loan amount and the value of your home. When you first buy your home your equity will be equal to your deposit amount, but in time your home’s value will go up and you’ll make mortgage repayments which will increase your equity.
In some cases, you may be able to access this equity and free up cash by refinancing your mortgage. Common reasons to release equity include:
Keep in mind when you release equity you’re not getting free money. The bank is just extending your mortgage to provide you with cash, which means your repayments may increase, along with the total cost of your loan.
The maximum loan to value ratio most banks will allow is 80%. That means when you refinance you’ll need to leave at least 20% equity in your property, and that you may be able to release or access anything over that.
For example, if you have 30% equity in your property you could be able to access up to 10% - If you have 40% equity you could be able to access 20%, and so on.
Refinancing can free up a lot of cash to cover other costs or invest. But depending on how much equity you release, your repayments and total interest cost can increase by a considerable amount.
|Original home loan||Home loan 1 refinance & equity release||Home loan 2 refinance & equity release|
Value of property
Loan amount (principal)
Cash amount released available to use after refinancing
Monthly mortgage repayment amount
Total interest cost over life of loan
There is much more to your home loan than your interest rate. There are also several features and loan structures available that could help you pay less interest and fees and/or pay your home loan off faster.
Refinancing can be a great way to improve your financial circumstances or to get yourself out of financial difficulty. Before making any changes you should always speak to your lender or a financial advisor.
Refinancing isn’t for everyone. Before making any changes to your loan weigh the costs and the benefits to make sure refinancing is the right option for you.
The risks of refinancing are that:
The secrets to reducing risk when refinancing are simple:
If you don’t take care when refinancing you may end up spending hours or days arranging your new loan, only to incur more fees than you might have if you hadn’t.
Before refinancing you should be fully aware of all fees that will be charged when you do - both by your current lender and your new lender.
$100 to $1,000
Charged by your lender for discharging your mortgage.
Usually 0.35% of the mortgage amount - varies between states.
Tax paid on property purchases in Australia - also levied on mortgage transfers in some situations.
Up to $1,000
Charged by your new lender to cover time preparing and reviewing applications.
Depends on your loan - can be thousands of dollars.
Charged your existing lender if you break your fixed-rate period.
$250 to $600
Charged by your new lender to cover costs of valuing the new property if necessary.
$100 to $500
Charged by a new lender to cover costs of settling the loan with your old lender.
Mortgage registration fee
$100 to $180
Charged by the state government.
Lenders mortgage insurance
Varies depending on your loan
May be charged if your property has decreased in value since you bought it and your LVR is over 80%.
$1,000 to $6,000
Illegal as of 1 July 2011. If you took out a loan before this date your lender may charge this fee when you exit your loan.
The mortgage lending sector is extremely competitive and lenders will fight over your business. As a result, when you refinance new lenders may be willing to waive fees and pay mortgage cashback to help cover your original lender’s fees.
If you’re ready to refinance the process is usually straightforward. The hard part is choosing which loan and lender to switch to.
Before you start talking to lenders decide whether or not refinancing will benefit you. Signs refinancing could benefit you include:
If you’re not sure whether or not refinancing is a good idea speak to an expert advisor like a mortgage broker for help making the decision.
The first thing you should do when you’re ready to refinance is speak to your current lender. Provided you're a low-risk borrower who makes repayments on time, they may be willing to drop their rates or offer better terms to retain your business.
To broach the topic simply call or email your lender and tell them you’re going to refinance your loan to another lender. If you want a better interest rate or lower fees, prepare by researching and checking what competing lenders are offering so that you can quote those amounts when negotiating.
In most cases, your lender will drop their rate and waive fees to keep your business (even if they are you should still compare the alternatives to make sure you get a good deal).
When comparing home loans always look at the comparison rates and consider the features they include. Comparison rates include both fees and interest so they represent the true cost of the home loan.
When comparing lenders read customer reviews online and check their websites for more information.
When you’ve chosen a lender and a loan product you think will be suitable, compare the costs of staying with your home loan with switching. If there’s not much difference, think about whether switching is worth the time and the trouble.
As you can see from the example below, even if you can secure a better interest rate like option 1 you may not save enough to make refinancing worthwhile.
|Current home loan||Refinancing option one||Refinancing option two|
Home loan amount
Years remaining in fixed period
Yearly repayment amount
Total savings during the year (after fees)
Once you’ve compared lenders and home loans to find the most suitable home loan for you it’s time to apply for a new home loan. Some lenders have fully online application processes while others will require you to visit their offices to sign documents - to get started simply visit your chosen lender’s website or contact them and enquire.
They’ll handle most of the hard stuff, including liaising with your old lender to transfer your loan.
Refinancing is the process of securing a new home loan to pay off the other. It’s usually done to switch to a new loan with:
In some cases, refinancing can save you thousands of dollars and make repaying your home loan easier. But before you refinance you need to do some work comparing other loans on the market to your current home loan to make sure the switch will save you money.
It’s particularly important to understand the cost of refinancing and all of the fees involved. In some cases, the cost of refinancing may outweigh any savings you make by securing a lower interest rate. That’s why it’s important to spend time comparing home loans and their fees, and/or seeking the help of a mortgage broker or financial advisor if you’re not sure.
Before you refinance you should also talk to your current lender to see if they’ll offer you a better deal to keep your business.
Refinancing is the process of paying off your existing mortgage by securing a new one. It’s usually done to switch to a home loan with better rates, lower fees or more suitable features.
Whether or not you should refinance your home loan depends entirely on your circumstances and the home loan itself. If you’re not sure whether or not you should refinance it’s always best to speak to an expert like a financial advisor or mortgage broker before making any big decisions.
Yes, usually you will be charged fees when refinancing, both by your existing lender and your new lender. In some cases, your new lender may waive fees or provide incentives to cover fees in order to win your business.
The main risks of refinancing are that changing to a new home loan costs you more money than it saves you, or that your new loan is less suitable. To minimise these risks do extensive research before switching, understand all the costs and get advice if you need it.
Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.
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