Refinancing Home Loans From 5.64%

The ins and outs of refinancing home loans

Feel like you're getting a raw deal on your home loan? Don't despair. You have the power to do something about it: Refinance.

To refinance means to change your home loan, either moving it to a different mortgage product or a different lender (or both).

By refinancing your home loan to a new loan with a lower interest rate or better features, you could save yourself thousands of dollars over the course of your loan period.

What is refinancing?

Decades ago, switching home loans was a bona fide nightmare. Fortunately, those days are largely behind us now. The advent of technology and automation not only means remortgaging from one home loan to another is often faster than ever before, but that many of the associated costs can generally be minimised. 

There are hundreds of reasons a borrower might want to refinance their home loan including:

• Wanting a better interest rate
• Sick of paying too much in ongoing fees
• Wanting to switch between variable and fixed rates
• Wanting to access home equity
• Looking to incorporate features that would be more beneficial to their situation
• Wanting to consolidate other debts into a home loan

What is a refinancing home loan?

When it comes to the semantics of the banking sphere, many tend to get caught up on the term 'refinancing home loan'. In actuality, there isn’t such a thing. Rather, there are just regular owner-occupier or investment home loans that you can refinance to.

Further, you don't have to swap banks or lenders in order to refinance – you can remortgage your home loan to a different loan product with your existing lender too. So, if you were to switch from a variable rate home loan to a fixed rate home loan, you might find yourself better off sticking with your current lender than finding a new one.  

To bust another common myth: You don’t have to take on any extra debt in order to refinance, you can simply remortgage the amount left to repay (the ‘principal balance’). For example, let’s say you’re five years into a $500,000 home loan, and have repaid $100,000 so far. If you wanted to refinance to a more suitable loan that had, say, a 15-year loan term, an offset account and a lower mortgage rate, then you could simply shift your $400,000 of outstanding debt.

Though, some Australians do take on extra debt when refinancing. That's because refinancing allows them to borrow more money against their property, commonly called accessing equity. They might wish to use that equity to pay for renovations or put down a deposit on a second house, for example. Refinancing could allow them to do so.

Which is the best bank for refinancing a home loan in Australia?

Choosing the best bank for refinancing a home loan really comes down to your personal needs and circumstances. What's perfect for one person might not be the same for another.

Generally speaking, it's probably worth looking for a bank that offers competitive interest rates, low fees, and flexible terms. It might also be wise to consider their customer service, the ease of their application process, and any fees they charge to set up a new home loan.

In addition to rates, fees, and terms, however, it's likely one borrower will value specific features more than another. Some banks might throw in, say, a fee-free credit card with every home loan they sign, while another could allow for limitless additional repayments – while the former bank might tempt one borrower, the latter could catch the eye of another. That is to say, what's best for your friend, neighbour, or colleague likely won't be what's best for you. Consider your individual needs carefully before you go hunting for a home loan to refinance to.

And remember: A little bit of shopping around and comparing deals can go a long way.

When is the best time to refinance?

Wondering when the best time of refinance your home loan is? Well, that's a lot like pondering the length of a piece of string. The question of when to refinance is one only you can answer, as your financial situation is likely as unique as you are. That said, there are indicators that can signal a good time to refinance, and they're worth keeping an eye out for.

For starters, refinancing may be a good idea if you feel you're paying too much in interest on your home loan. It's generally recommended that borrowers keep an eye on the mortgage market so they know if their home loan deal has turned sour. Offered interest rates can vary greatly between banks and lenders, and it's not uncommon for a homeowner to wake up one day and find the once-competitive rate they secured years ago is no longer competitive at all. 

The current interest rate environment has pushed many home loan borrowers into 'mortgage stress' territory. InfoChoice's Real Hardship Survey in 2023 revealed 50% of mortgagors are spending more than 30% of their household income on mortgage repayments. But you don’t need to be in mortgage stress to be unhappy with your home loan. Keep in mind that even a slight reduction in interest rates, fees, and features can make a noticeable difference to your budget.

Another signal that your home loan simply isn't serving you anymore might come from outside your mortgage entirely. If your financial situation has changed since you took out your home loan, it might be worth considering your refinancing options. For instance, if you purchased your first home with a 5% deposit and you have since repaid a hefty chunk of your mortgage, you're likely now eligible for many deals you once weren't – those deals could be worth considering.

Or maybe you've built a notable stack of cash in your savings account and you now wish to use it to reduce the interest payable on your home loan – you might want an offset account to do that. If your current home loan doesn't allow for an offset account, now could be a good time to think about refinancing to a product that does.

However, it might not be worth refinancing if you:

• Have only just taken out the loan and your situation hasn't changed much
• Have a loan that comes with high refinancing costs, or your ideal loan comes with high establishment fees
• Don’t have much time remaining on your loan term
• Your remaining principal is small

Essentially, if the costs of refinancing outweigh the potential savings or other benefits, it’s probably not worth it.

How much can you save by refinancing to a better rate?

If you have a $500,000, 30-year home loan with an interest rate of 7% p.a., here's how much you could save by securing a lower rate:

Calculated using Savings.com.au's Refinance Home Loan Calculator

As the table above shows, by refinancing from a relatively high interest rate to a lower one, a borrower could potentially save hundreds of dollars a month, or tens of thousands over the life of their loan.  

How do I refinance my home loan?

Unhappy with your home loan? Many Aussie homeowners likely find themselves scratching their heads, wondering how to refinance a home loan. 

Fortunately, Savings.com.au has laid out the process in a handy step-by-step guide.

After reaching out to your lender to see if they can offer you a better deal and crunching the numbers to factor in the cost of refinancing, the next step is to compare other mortgages on the market with your own, and we've laid out some of the best home loans for refinancers in the table above.

If you’ve compared your home loan against others available, crunched the numbers, and believe you'd be better off making the switch, the next step is to gather your resources in order to apply for a new loan. Be prepared to dust off your documents as your broker or preferred lender will likely wish to validate your identification, view your pay slips and loan statements, and check out any other documents that detail your financial situation.

Once you have everything in hand, it's time to get in touch with your broker or chosen lender. They'll likely guide you through the application process. This usually involves a detailed review of your finances and potentially a property valuation – both of which can, in many cases, be completed entirely online.

Remember, good preparation and clear communication can make the process smoother.

After your application is submitted, there may be a waiting period while everything is finalised with both your new and current lender. Stay patient, and soon you could be enjoying the benefits of your new home loan deal.

If a few years down the track you think you can get an even better deal, you might consider refinancing again! After all, when it comes to home loans, lenders need to earn your loyalty.