Refinance Home Loans

If your current deal isn’t stacking up, it might be time to refinance. Switching your mortgage to a new loan with a lower interest rate or better features could save you many thousands of dollars over the course of your loan period.

What is refinancing?

Refinancing basically means changing your home loan. It can be:

• Internal (switching to a different loan product with the same lender), or
• External (switching lenders)

To externally refinance, you make a refinancing application with your new lender of choice. If successful, the new lender pays off the existing loan (to your old lender), then you keep making repayments on the new loan.

There are lots 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

How to compare home loans when refinancing

If you're refinancing, there are a few things you should be looking at when trying to find the best refinance home loan for your circumstances.

Check the interest rate and comparison rate

The biggest reason to refinance is usually to pay a lower interest rate. Over the life of a loan term, even small rate drops can add up to thousands of dollars worth of savings. 

However, don’t just stop at the advertised rate, look at the comparison rate too. The comparison rate reflects fees and charges that come with the loan. This gives you a clearer picture of the true cost of over time.

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

Imagine your current home loan is at 5.90% p.a. and you find a product you can switch over to that has a rate of 5.50% p.a. Here's how much you might be able to save depending on your loan size:

Calculated using Savings.com.au's Refinance Home Loan Calculator. Assuming a 25-year loan term with monthly repayments.

Take into account all fees and charges

Refinancing is rarely free. Just like when you apply for a home loan, you might incur charges like application or establishment fees from your new lender. 

If you’re switching lenders, you typically have to pay a mortgage discharge fee, which covers the administrative costs of closing out your home loan. Most banks charge between $150 and $400, while some (albeit less common) may charge up to around $500. 

Your existing lender might also impose a break cost for discharging your loan early if you’re on a fixed rate. 

Other fees to check and compare include valuation fees, annual package fees, and ongoing costs. 

Look closely at loan features

Home loan features such as redraw facilities, offset accounts, and flexible repayment options can make a big difference to your mortgage. Evaluate which features you need and can help boost interest savings. If you currently have a basic, feature-lite home loan, you might need to refinance to access the features you want.

Many refinance mortgages may also offer fast approval times and/or digital-first management, which can be appealing if you want a streamlined setup. 

Factor in your property valuation and LVR

Your property’s assessed value directly affects your loan-to-value ratio (LVR), which impacts the rates you’re eligible for. A lower valuation can push your LVR higher, which means LMI may become payable if you’re pushed above 80% LVR or you may drop into higher LVR pricing thereby increasing your costs. 

Example: If your $750k home is valued by the lender at $720k, a $576k refi that looked like 76.8% LVR becomes 80% LVR potentially tipping you into LMI territory. 

1. Savings.com.au tip: Aim for ≤80% LVR to avoid LMI and broaden your options. If you’re chasing the sharpest pricing, aim for ≤60%. Now, if a low valuation pushes you higher, consider shopping the valuation or tweaking the loan amount to land in a better LVR band.

See if the lender has refinancing offers

Lenders often have special offers designed to entice customers to refinance to them. Most common is cashback, which is exactly what it sounds like – your new lender will reward you for refinancing with a couple of thousand dollars. This can be debited from your outstanding loan balance, or go straight to your bank account.

Read more: Home loan cashback offers and deals

How do I refinance my home loan

• Reach out to your lender – Before looking elsewhere, contact your lender first. Ask whether they can offer you a better deal on your existing home loan.
• Run the numbers – Crunch the numbers, including all the costs to refinancing your home loan to see if switching will save you money.
• Compare your current loan to others on the market – Review interest rates, comparison rates, features, and fees. Use refinance comparison tables to see how your current loan stacks up.
• Decide whether refinancing is worthwhile – Weigh up if the fees and upfront switching costs you may potentially incur outweigh the savings you’ll get from refinancing.
• Gather all required documents – Prepare identification documents, collect recent payslips and bank statements, and have any other documents ready that outline your current financial position. 
• Contact your broker or chosen lender – Once your documents are ready, get in touch to start the application process.
• Wait while both lenders finalise the refinance – There may be a waiting period while your new and current lenders complete the transition. 

Read more: How to refinance your home loan

When should I refinance?

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 common indicators that it might be a good time to consider refinancing: 

• You suspect you’re paying too much interest on your current home loan.
• You notice your rate is no longer competitive. Interest rates fluctuate and can vary significantly between lenders, so a once-sharp rate can become uncompetitive over time.
• You’ve repaid a large chunk of your mortgage and now have a lower LVR, which might qualify you for loans and rates that weren’t available to you before. 
• You want to borrow a bit extra or ‘top up’ your existing loan, which usually involves an internal refinance. 
• You want to switch to a loan that offers helpful features, such as an offset account. 
• You’re currently on variable and want to lock in a fixed rate (or vice versa). 

When not to refinance

It might not be worth refinancing if:

• You have only just taken out the loan and haven’t built enough equity. Refinancing too soon, as in within the first 1-2 years, can mean high LVR and very little interest shaved off. 
• Your financial situation hasn't changed much since, or, worse, has actually worsened (i.e., your income dropped, your expenses have risen, your credit score has taken a hit).
• The switching costs outweigh the benefits, that is the long-term savings from refinancing your home loan don’t clearly exceed the upfront and ongoing costs (e.g., discharge fees, application fees, valuation fees, break costs, etc.).
• You’re still in a fixed-rate period and the break cost would outweigh the savings. 
• Your property has dropped in value or you’re at high LVR. A lower valuation can push your LVR above 80%, which may mean paying LMI. 
• You’ll lose valuable features your current loan offers. 
• Your current lender is willing to reprice your loan. Sometimes the quickest win is negotiating a lower rate, so talk to your lender first. 

Read more: Pros and Cons of Refinancing

Zara Lim

31, owns properties in VIC

When and why does Zara refinance her home loan?

My last refinance was to split one of my loans to have half fixed and half variable. I calculated that I had enough cash to sit in an offset account and decided to keep that portion as variable so that it could be offset. The rest I decided to fix for two years at a lower rate so that I'd pay slightly less interest on the portion I couldn't offset.

When it's the right time to refinance will be different for everyone. Refinancing is a constant thing to do if you want to move towards your long term goals. Every 1-2 years your position will have changed, and, in my case, I'll re-look at my portfolio to see: Can I get a better rate? Can I streamline my portfolio? Can I be in a better situation where I can expand?

Nick Lissikatos

Director at Trelos Finance

What the expert says

Refinancing is like renegotiating your biggest bill. Lenders will often look after new customers better than existing ones, and if you’ve been sitting on the same rate for a while, there’s a decent chance you’re paying a loyalty tax.

Most of my clients refinance for one of two reasons: either they want to stop overpaying on interest, or they want a better structure (usually an offset) so their money works harder.

Savings depend on the loan size and the rate gap. As a rough guide, if you shave 0.50% off a $700k loan, that’s about $3,500 a year in interest. Bigger balances or bigger rate gaps obviously move the needle faster. 

However, the real win is when you combine a sharper rate with the right structure, because that’s when people not only save money, they build momentum.