How to refinance a home loan?

Refinancing your home loan can be a big money saver — and millions of home owners aren’t wasting any time getting a better deal.

There was a time when we stayed with the same home loan for the life of our loan. Not so these days.

Home owners are refinancing on average 5.6 years after purchasing their property. Along with opportunities to save at a lower rate or access new loan features, refinancing can also be a way to achieve personal goals.

What is refinancing?

Refinancing is the process of replacing your old home loan with a new one – either through the same lender, or with a different lender.

As a guide to how popular refinancing a home loan has become, research by property exchange PEXA shows more than 1 million Australians refinanced their mortgage in the year to September 2022, and a further 2.28 million home owners were considering refinancing in the next two years.

How do I refinance my home loan?

It may sound complicated, but refinancing a home loan can be a straightforward process.

To get started, it’s a good idea to shop around for a new loan, comparing interest rates, loan fees and features. You can compare on your own or look through a mortgage broker. If you’re refinancing on your own, it may be worthwhile to call your current lender to see if they have any offers to refinance your current home loan.

When you’ve found the mortgage that suits your needs, you’ll need to submit an application in much the same way as when you took out your current mortgage. Your potential new lender will typically ask for details of your income and expenses as well as information about your assets and liabilities.

Learn more: How to apply for a home loan

If your new home loan is approved, the lender normally arranges to pay out your old lender, and you begin making loan repayments on the new loan.

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Should I refinance my home loan?

The decision to refinance is a very personal one, and whether it is the right choice for you depends on what you would like to achieve by switching to a new loan.

Refinancing a home loan can be an opportunity to save on loan interest. Reserve Bank of Australia data shows many lenders are still offering their best deals to new customers, and saving on your loan rate can trim regular repayments, putting cash back in your pocket.

Refinancing can also be a way of tapping into features that are not available with your current loan such as an offset account, or the option to split your mortgage between fixed and variable rates.

There can be other reasons to refinance. It can be a way of consolidating multiple debts into a single loan to streamline your finances. Or you may choose to refinance in order to tap into home equity as a source of funding for personal goals such as home renovations or investing in a rental property.

What matters is that you consider if refinancing your home loan is the most suitable option for your goals.

When consolidating any debts, you could be converting a short-term loan into a longer-term home loan which means you could end up paying more than if you’d cleared the short-term loan.

The Australian Government’s Moneysmart website also warns that when consolidating debts you might converting an unsecured loan debt into a secured loan, secured against your home.

Explore further→ When should I refinance my home loan?

What does it cost to refinance a home loan?

Refinancing a home loan can come with costs. So, the decision to move to a new loan makes it important to compare the benefits against the overall cost to see if refinancing will put you in front financially.

The potential savings of refinancing can certainly be impressive. A survey by broking group Mortgage Choice found borrowers who refinanced with a mortgage broker saved an average of $409 on their monthly repayments. Home owners who went direct to their lender to refinance saved an average of $249 each month.

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On the flipside, there are costs associated with refinancing. These may include mortgage discharge fees charged by the old lender plus application fees on the new loan.

One potential cost to be aware of is lenders mortgage insurance. If your new loan is worth more than 80% of your home’s value, you will likely be asked to pay lenders mortgage insurance (LMI). This applies even if you paid LMI when you first purchased your home. LMI can be a significant expense with the potential to wipe out the savings of refinancing if it applies.

Some lenders offer cashback payments to refinancers, which in some cases can be worth thousands of dollars. This can offset all, or part of, the costs of refinancing. But it is still important to be sure you are paying a competitive rate on the new loan as this can be the real driver of long-term savings.

Learn more: Home loan refinance cashback offers & deals

How long does it take to refinance a home loan?

The time taken to refinance your home loan may depend on your choice of lender, but it can be a surprisingly quick process.

The PEXA survey mentioned earlier found that among borrowers who refinanced with their existing lender, it took an average of three weeks to complete the process from application to loan settlement. The process was slightly longer for borrowers who switched to a new lender, taking an average of 4.2 weeks from application to completion.

Is it worth refinancing my home loan?

Your home loan is likely to be your biggest personal debt, so ideally it should not be a ‘set and forget’ product. It can be worth reviewing your home loan at least annually – or ask a mortgage broker to do this for you, to be sure you continually have the loan that suits your needs at a competitive rate.

If it turns out you could get a better deal by switching, or if your loan isn’t keeping with your needs in terms of features, it could be time to consider refinancing.

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