How To Refinance Your Home Loan in 10 Steps
- Our Editor explains the home loan refinancing process based on his multiple experiences of switching lenders.
- See how he shaved more than $6,000 off his annual interest bill (after fees) by refinancing, while earning $3,000 cashback.
Key tips on from my experience of switching home loans
- Most lenders move slowly. Give them a deadline to speed things up: ‘I absolutely need the refinance done by X date’.
- If you ask (and I always have), there is a good chance the new lender will waive the application fee and other up-front fees.
- Make sure your bank, credit card and loan statements are squeaky clean before you apply (i.e. no late payments of crazy spending for 3-6 months in advance).
I’ve refinanced my home loan twice in the last three years. Each time I refinanced I got a much better deal, and earned cashback in the process. But on both occasions there were several things I knew by the end of the process that I wish I’d known at the start (how long it can take for starters).
Below, I outline step-by-step how the process worked for me. Every refinance will be different, but this will give you an idea of what to expect. There are also nuggets of wisdom sprinkled through from Money.com.au’s home loan expert, Mansour Soltani, a mortgage broker who has helped countless homeowners refinance.
10 steps for refinance a home loan
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1. Decide whether to use a broker or not (or do a bit of both)
Most people use a mortgage broker when getting a home loan or refinancing (70% is the number usually quoted). Having refinanced with and without the help of a broker, I can see why.
A broker can potentially save you a lot of time. Particularly if your application is complicated or you’re unsure whether you’ll be eligible. For example if...
- You’re refinancing to a larger loan amount.
- Your income has dropped recently.
- Your property’s value has dropped since you bought it.
- You want to refinance from a bad credit home loan to a standard loan.
- You’re refinancing as an individual, having been approved for your initial loan as part of a joint application.
The flip side is a broker only has access to their specific panel of lenders, not all providers. There’s a decent chance you will be able to find a cheaper loan by comparing yourself, assuming you are prepared to put in the work.
You can always hedge your bets and see what a broker can bring to the table and ultimately go it alone if you feel you can do better (which was ultimately what I did the second time I refinanced).
2. Work out your LVR
This is your loan-to-value ratio. Just as it is for first-home buyer loans, your LVR is key when you refinance.
Most lenders set the interest rates on their loans based on the borrower’s LVR. Knowing roughly what your LVR is gives you an idea of where to focus your search.
To work out your LVR, divide your current loan balance by the value of your property and multiply that number by 100.
You can get an estimate of your property’s value through a property report. Google ‘free property report’, and you should be able to get one easily (you may have to hand over your email address for the privilege).
3. Decide on the type of loan you want
Basically I just wanted a better version of the same kind of loan. But you can also refinance to a different loan structure or type, such as:
- A fixed rate loan
- Variable rate loan
- Split loan (part fixed, part variable)
- Interest-only home loan (the alternative is principal and interest)
- Investment property loan (e.g. if you’re refinancing because you’re turning your family home into an investment property)
4. Compare loans
You can do this through our refinance home loans guide which lists top offers and tips on finding the best deal. In summary, the main things I was looking at when I refinanced were:
- Interest and comparison rate: I kept this simple. I wanted the lowest rate possible from the loans with the features I wanted. A decent rule of thumb is looking for something that's comfortably lower than the current average home loan rate.
- Loan features: An offset account (where any savings you reduce the interest you pay on your home loan) has always been at the top of my wishlist, plus flexibility to make extra repayments. If an offset wasn't an option, a redraw facility was my plan b. You can read more in our guide to how redraw and offset differ.
- Lender reviews: Not a deal breaker for me, but I checked online reviews for recurring red flags.
A mortgage broker will do the comparing for you (among the lenders they work with) and then present you with their recommended options.
Here’s the one I received when I refinanced with a broker…
5. Request a home loan discharge form from your lender
This is the form you need to submit to instruct your current lender that you are leaving. But there is a very speficic reason for requesting it at this stage, according to Money.com.au’s home loans expert, Mansour Soltani.
“After you request a discharge form, you will get a call from your lender's retention team. If you have a competitive rate from another lender ready to quote to them, more often than not, they will match it to keep your business.”
In some cases, this is where the process ends as you will have secured a better deal. But if you decide you still want to switch…
6. Submit an enquiry
Once you’ve chosen a new loan, you usually get the ball rolling by submitting an enquiry with the lender. Typically, you get a call back from a mortgage specialist who talks you through the process and asks initial questions to gauge your eligibility.
They’ll explain what you’ll need to submit as part of your application.
7. Make an application
If you refinance through a broker, they'll gather information from you and submit the application. Otherwise, you’ll need to do it yourself, which took me about an hour from start to finish.
That included gathering documents I needed to submit along with the form:
- Scans of photo ID for my wife and I
- Copies of two latest pay slips each
- Bank statements showing the last three months of activity (for all accounts including credit cards)
- Statements for the home loan being refinanced
- Proof that our property was insured
You may need to print your completed application form, sign it and scan before you send it off. As someone who does not have a printer at home, this was a pain but not a deal breaker.
8. Get approved
The lender will go through your application in detail and check your bank account statements line by line. For each of my past applications, I was asked to clarify specific points or provide extra detail.
“What a lot of people don’t realise is if you have a bank account and the balance goes negative and you’re charged debit fees, this will show up on your statements and is a red flag for lenders about how you manage your finances.”
Mansour Soltani, Money.com.au's home loan expert
The lender will also do a credit check and order a valuation of your property.
This doesn’t always involve a physical inspection of the property but it did both times for me. Be sure to highlight any recent improvements to your property that might bump up the valuer’s appraisal.
If the valuation is high enough that your LVR meets the loan eligibility criteria, your loan will be fully approved.
9. Your old loan is discharged and the new one is settled
You’ll need to sign the loan discharge form and submit it to your old lender. In a lot of cases, the new lender or your mortgage broker will take care of this. All you need to do is sign the form.
Once the old loan is discharged, the new one is settled. Basically that means your new lender pays off your old loan. The old loan is then closed, and your new lender opens a loan account for you.
Job done? Not quite.
10. Set up your new loan (properly)
As a final step, make sure your loan is set up so you’re paying as little interest as possible. Here are a handful of super quick changes to consider, courtesy of home loans expert Mansour.
- Set the repayment frequency to weekly or fortnightly (monthly is usually the default). The more often you are chipping away at the balance, the less interest you will pay.
- Increase your regular repayment if you can afford to. The minimum repayment in the loan contract is just that, a minimum. Paying even a little bit extra will make a huge difference over time.
- Make full use of your offset account if you have one. Arrange for your salary to be paid into it and transfer any savings into it too. A high offset balance will likely save you much more than you could earn with even the highest interest savings account.
- Set a reminder to review your loan in 12 months’ time to make sure it’s still competitive.
Summary of how the refinance process played out for me
| Refinance 1 (January 2021) | Refinance 2 (March 2023) | |
|---|---|---|
Used a mortgage broker? | Yes | No |
How long did refinancing take? | Around 8 weeks from start to finish | Around 6 weeks from start to finish |
Lenders involved | Switched from Commbank to Suncorp | Switched from Suncorp to BCU Bank |
Loan balance | $685,000 | $620,000 |
Previous interest rate | 2.99% p.a. (variable) | 1.89% p.a. (fixed for 2 year) |
New rate | 1.89% p.a. (fixed for 2 years) | 4.99% p.a. (fixed for 1 year) |
Change in fortnightly payments after refinancing | -$288 ($7,488 annually) | +$503 ($13,078 annually, ouch*) |
Discharge fees on old loan | $740 | $200 (would have been more but Suncorp reduced it as a goodwill gesture) |
Fees on new loan | $375 annual loan fee | $0 |
Cashback earned | $3,000 | $3,000 |
Frequently asked questions about the refinance process
How do I refinance a home loan with the same bank?
This could be as simple as asking to be moved to a different product if the lender has a better deal available. However, if you’re changing the structure or type of loan, you will typically still need to complete an application which will be subject to approval.
Examples could include:
- Increasing your loan size
- Changing from an owner-occupier loan to an investment property loan
How long will refinancing take?
How long refinancing a home loan takes will depend, but generally it will take a several weeks to complete from start to finish. Refinancing with your own bank will likely be faster.
What will it cost me to refinance?
When you refinance, several home loan fees could apply, including:
Fees charged by your existing lender:
- Discharge fee, which is essentially a fee charged for closing your loan account when you leave.
- Fixed-rate break fee, which only applies if you leave a fixed-rate loan before the term ends.
Fees charged by your new lender:
- Application fees, charged by the lender for processing your application.
- Legal and valuation fees, to cover the lender’s costs.
A lot of the time, it’s possible to negotiate with your new lender to reduce or remove the upfront costs of the new loan. Or if the lender is offering cashback for people who refinance with them, this will likely outweigh any cost.
Can I refinance if I’m on a fixed rate?
Yes, it’s possible to refinance even if you’re on a fixed-rate loan. However, there is usually a fee for breaking the fixed term. This can be several hundred dollars depending on the loan, so it’s worth thinking carefully whether refinancing will be worth it.
If you are on a very uncompetitive fixed-rate loan with a decent chunk of time still to go on it, paying the break fee may ultimately be a smart move.
Home Loans guides and resources
What's the next step on your property journey? Our home loan guides will help you navigate the road ahead, whether you're buying, building or looking to save on an existing loan.
Written by
Editor
Sean Callery
Reviewed by
Senior Finance Writer
Megan Birot
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