Compare top home loan refinance rate offers

Refinancing your home loan has the potential to save you money and help you pay off your home sooner, but only if you pick a loan that’s more competitive than your current one. That means shopping around for a lower rate.

Canstar rounds up some of the lowest fixed and variable rate refinance home loan rates currently on its database and answers some of the questions you may have if you’re thinking about refinancing.

Some of the top refinance home loan rates on Canstar’s database

How much could you save by refinancing your home loan to a lower rate?

If you choose the right product, refinancing your home loan could save you a significant amount of money in interest over the life of the loan. This is because there can be a massive difference between the rates different lenders are offering, and some offer particularly attractive rates to new customers looking to refinance to them.

To illustrate this, the average standard variable owner-occupier home loan interest rate on Canstar’s database is 3.27% (as at 12 July 2021), while the lowest rate on offer is 1.89% (comparison rate 1.90%). These rates are based on a loan amount of $500,000 and a borrower with an LVR of 80%, excluding first home buyer-only loans and introductory offers.

Based on these figures, a hypothetical borrower paying principal and interest on a $500,000 loan at an interest rate of 3.27% could save $354 per month by switching to a loan with a rate of 1.89% If the borrower refinanced five years into a 30-year term and the interest rate stayed at 1.89% over the remaining 25 years, they would pay $109,781 less interest in total.

This calculation does not factor in fees or costs associated with switching, which brings us neatly on to…

Does refinancing cost money?

While it may save you money over the long term, there can be some upfront refinancing costs to bear in mind. Some common fees you may need to pay are:

Discharge/break fee: This is sometimes charged by your old lender to release you from the loan contract. If you switch from a fixed-term loan, you may also incur a break fee if you’re ending the loan agreement before the end of the fixed term.
Application fee: You may need to pay a fee to the new lender when you apply for its home loan product.
Ongoing fees: For example, a monthly account-keeping fee on a linked offset account.

Another way that a lower rate home loan could end up costing you is if you refinance to a higher loan amount or extend the term of your loan.

Using Canstar’s mortgage repayment calculator could help you work out the impact of borrowing more and over a longer term.

Why might you refinance your home loan?

Refinancing your home loan generally means switching to a new product or provider.

There are a number of reasons why you might choose to do this:

Saving money with a lower rate: By switching to a loan with a lower interest rate and/or lower fees, your regular repayments will generally be lower. It’s important to consider fees too. Shopping for loans based on the comparison rate can help you get an idea of the overall cost of the loans you’re considering.
Pay off your loan sooner: A cheaper interest rate could mean being able to pay off your loan sooner than the standard term. To do this, you would generally need to keep your regular repayment amount the same as it was on your old loan.
Access better features: You could also choose to switch to get access to features that your current loan doesn’t offer, such as an offset account or redraw facility.
Move to a new lender: You may simply prefer to move your business to a new provider – for example, if your current one is not offering you the service level you would like.
Your situation has changed: A change to your circumstances could mean that switching to a new product makes sense. For example, you might choose to switch to a fixed rate product if certainty in your repayment amounts is particularly appealing right now.

How do you refinance your home loan?

Refinancing your home loan is generally a similar process to the one you would have completed when you took out your loan initially. However, an additional step you may want to consider is to contact your current lender before you switch, as they may be willing to offer you a lower rate, which would save you needing to go through the process with a new lender.

If you decide to refinance, the process generally involves the following steps:

1. Shop around for a lower rate (or whatever you’re looking for from the new loan)
2. Make an application
3. Provide supporting documentation
4. Have your property valued (your lender will usually arrange this to establish what your LVR will be)
5. Sign any loan discharge documents if necessary (instructing your old lender that you are switching)
6. The new loan settles (where your old and new lenders finalise the switch).

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How much equity do you need to refinance?

The level of equity (essentially, the proportion of the property that you own) required for a loan varies from product to product. For example, with some loans, you may be able to refinance with equity of as little as 5% (or an LVR of 95%), but refinancing under those circumstances may prove expensive as you could be required to pay for lenders mortgage insurance (LMI), even if you already paid it when you took out your initial loan. If your equity is 20% or above, you can generally avoid needing to pay for LMI, so you may wish to wait until you have reached that level before refinancing.

It’s worth bearing in mind that the value of your property may have changed since you took out your existing loan and this, combined with how much of that loan you have paid off, would contribute towards determining your current level of equity. Lenders generally arrange for a new property valuation when you apply for a refinancing home loan.

Does refinancing hurt your credit score?

Applying for a new credit product can have an impact on your credit score in the short term, as the new loan application is likely to be added to your credit report and this is what your score is based on.

In particular, applying for multiple credit products (home loans, personal loans, credit cards etc.) in a short space of time could have a negative impact on your credit score. However, if refinancing means you move to a lower interest rate and your regular repayments become more manageable, or even enable you to pay off your loan faster, this could have a positive impact on your credit score over time.

Can you get cashback if you refinance your home loan?

Some lenders offer cashback as an incentive to entice borrowers to refinance with them. These cashback offers can range from $1,000 to $5,000, depending on the situation and the particular lender.

Bear in mind that there are usually strict eligibility criteria (e.g. the home loan may need to above a certain value) and that over the long term, the amount you earn in cashback may be dwarfed by the extra money you end up paying if the loan’s interest rate and fees are higher than other options out there.

Can you refinance with the same lender?

It may be possible to refinance your home loan with the same lender. This could involve refinancing the same product but with a higher loan amount (a mortgage top-up), or refinancing to a different product – for example, switching from a variable loan to a fixed rate, or vice versa.

Refinancing with your existing lender may prove more straightforward and faster (although this isn’t always the case), but it can still be worthwhile looking further afield, particularly if you can secure a lower interest rate elsewhere.

Bear in mind that some lenders reserve some refinance offers – whether that’s a lower rate or a cashback incentive – for new customers, so you would need to check what the eligibility criteria are before applying to refinance.

Cover image source: Jaaske M (Shutterstock.com)