To switch or not to switch (lenders)?
- Borrowers typically refinance to reduce interest rate, unlock equity, or access better loan features.
- Negotiate with your current lender first if they can offer you a lower rate before switching to a new one.
- Discharge fee, application fee, and valuation fee are some of the charges you may have to pay when you refinance your mortgage.
- If refinancing above 80% LVR, LMI may be charged again even if you paid it last time.
If you've seen better interest rates advertised on the home loan market, you may have considered shopping around for a better deal on your mortgage.
Borrowers can choose to refinance for a number of reasons such as seeking a lower interest rate, accessing additional features or flexibility, consolidating debts, or unlocking home equity. Essentially, it all comes down to your personal situation.
Here's how to switch your home loan in eight steps.
Step 1: Check your current home loan rate
Firstly, it's important to know what you're currently paying on your home loan. Your interest rate should be listed on your home loan statement which you should be able to access online.
If you can't find it, you can check your lender's current rates via its website.
But bear in mind, you may be on a different rate than what's advertised. If you're paying a fixed interest rate, for example, advertised rates are likely to be quite different to what you signed up for when your loan was settled.
If all else fails, hop on the phone and give your lender a ring to find out the details. You'll need to have some account information handy, such as your customer or account number.
- Quick tip: Don't forget to find out about any ongoing or annual fees you may be paying as well. You'll need to take these costs into account when you're considering refinancing your home loan.
See also: Guide to home loan fees and charges
Step 2: Ask your lender to do better
The truth is, just as with many relationships, it's easier to moan to your current bank than it is to go through the rigmarole of switching to another one.
But here's the deal: it costs a lender a lot more to bring in new business than it does for them to retain existing business. Plus, lenders have entire teams solely devoted to keeping you as a customer.
That being the case, you should research the best deal on the market, ring your bank, and threaten to refinance with someone else if they don't drop your interest rate. They'll either transfer you directly to their retention team or call you back within minutes.
See also: How to ask your lender for a home loan rate reduction
But are you actually a customer worth keeping?
You want to make sure you're the kind of customer they actually want to keep in the first place. If you rarely make your repayments on time, they may be happy to bid you adieu.
You also need to be ready to follow through on your threat to refinance with another lender. If your lender isn't making too many concessions, move on to one that will.
Savings.com.au's two cents
Refinancing your home loan may seem daunting, but if it can potentially save you thousands of dollars, why not make the switch?
The main thing you need to keep in mind is that research is your friend. Consider taking some time to shop around for the best deal available on the market. After you find 'the one' (your chosen lender), most of the hard work is done as the lender should take care of the rest for you.
Remember, breaking up with your bank isn't hard to do.
Step 3: Find out the costs for exiting your current home loan
Exiting your current home loan often comes at a cost.
Discharge fee
Almost every lender will slug you with a discharge fee. It's usually no more than a few hundred dollars, but you should still check with your lender to see how much you'll be asked to pay.
Break fee
If you're on a fixed-rate home loan, you'll need to check the break costs for terminating the loan before the loan term is over. These costs can run into the tens of thousands, but may be as low as a few hundred dollars. Either way, hop on the blower and find out.
LMI
Find out if you'll face paying lenders mortgage insurance (LMI) as you may still incur this cost even if you paid it last time.
How so? Your property’s valuation affects your loan‑to‑value ratio (LVR), which can change the rates you qualify for and may trigger LMI if the LVR rises above 80%.
For example, if your $750k home is only valued at $720k, a $576k refinance will turn a 76.8% to an 80% LVR, potentially pushing you into LMI territory.
See also: Which lenders offer low or no-cost LMI?
4. Shop around and compare home loans
Getting the best loan for your money isn't rocket science, but you may have to navigate the murky waters of the mortgage industry to get it. Jump online and compare the rates available from different institutions.
Looking to refinance? The table below features some of the lowest-rate owner occupier home loans on the market.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
Don’t forget to check the key fact sheet
When you find some loans that offer the features you want, ask the lender for a key fact sheet on each loan to compare features. Credit providers have to provide you with a key fact sheet on home loans, but only if you ask for one.
Key facts sheets give you all the information you need in a set format to make it easier to compare loans. They typically contain:
- Interest rate information (including current rate how repayments may change if rates increase)
- Repayment details (e.g., estimated monthly or annual repayments)
- Total cost of the loan (aka the total amount to be repaid over its full term)
- Loan term
- Fees and charges
- Loan features (whether it’s fixed or variable and any key inclusions)
Step 5: Consider the costs of moving to a new lender
There may be a few common upfront fees you may be asked to pay when switching to a new lender such as an application fee, settlement fee, and a valuation fee, to name a few.
Total refinancing costs usually fall between a couple hundred to a couple thousand dollars, depending on the lender, state fees, and whether you receive fee waivers of cashback.
See also: Costs of refinancing your home loan
Lenders love to get refinancing business from another lender as it usually involves profitable loans at lower LVRs from borrowers who have a proven repayment track record. Lenders will sometimes throw in a special deal to secure you as a customer by waiving fees, or even offering to pay clients for some of the costs associated with leaving their current lender.
Step 6: Consider the term of the new loan
But before you make the switch, there's one last thing to take into consideration. Check the term of your new loan.
Some lenders will only let you refinance with a loan of 25 or 30 years rather than the number of years you have left to pay off your current loan.
What this means is that if you take on the new loan, your repayments will drop, but if you only pay the bare minimum in repayments, it will take you 25 or 30 years more to pay off the loan and increase overall interest costs.
If that's the case, you may want to think about increasing your repayments for your new loan so you aren't still paying it off when you're rolling around the nursing home in your wheelchair.
Savings.com.au's Mortgage Repayment Calculator can help you run the numbers.
Step 7: Apply for your new home loan
Different lenders will have different application processes. Some are entirely online while others may offer the choice of doing things the old way if you're more comfortable with that.
In general, these are the details you will need to have ready:
Personal information
You will have to provide your name, date of birth, and contact information. You may also be asked to provide a valid ID such as your driver's license, Medicare card or passport.
Financial information
You may also need to provide details of your employment, income, assets and any liabilities. Lenders will want to see documentation of this, so you'll need to have your bank statements and payslips ready to go.
Loan information
You will need to provide details of your current home loan so that your lender can see your current repayment history and the outstanding loan amount.
Property information
Your new lender will likely want to see details about your current property. They will also likely want to have a valuation done to assess its current value so they can determine how much to lend you.
Once you've applied, approval generally takes anywhere from a day to eight business days. Some online lenders can be pretty quick off the mark and have your loan approved within hours.
See also: Lenders with fast home loan approval times
Step 8: Exit your old home loan
This bit is the easy part! Your new lender will usually communicate with your old lender to discharge you from your old home loan. They'll also handle all the exchanges of documentation for you.
After this, your new home loan will reach the 'settlement' stage. The settlement stage is when the actual funds are disbursed to pay out your old home loan and, if all goes well, you should be able to reach settlement within weeks.
And that's it! You've navigated the murky waters of the mortgage industry and successfully refinanced your home loan.
The first thing to do when you want to refinance
The first and easiest thing to do is call your bank and ask for a discount on your variable rate. The worst thing they can do is say no
If you have a broker, reach out to them and ask them to submit a pricing request on your behalf. If they are unsuccessful, they will typically offer you some alternatives.
Most importantly, keep a close eye on your loan accounts and know exactly what interest rate you’re paying. Don’t let the lender take advantage of your own complacency.
Frequently Asked Questions
Refinancing involves replacing your current home loan with a new one, either with your existing lender (internal refinance) or a different one (external refinance). The steps typically involve checking your current interest rate and equity, comparing options, preparing your application, paying applicable fees, and getting your property valued and reviewed.
You can refinance your home loan whenever it financially makes sense. Common reasons include seeking a lower interest rate, new features, or cash back offers. Wanting to unlock equity, consolidate debts, and change loan structure are common triggers too.
Refinancing typically takes a few weeks from initial consultation to settlement, depending on the lender, complexity of your situation, and how quickly you provide documents. Once your application is submitted, approval generally takes anywhere from a day to eight business days. Some online lenders may be able to have your loan approved within hours.