Refinance your home loan

Refinancing a home loan starts by comparing what the market has to offer and identifying suitable home loan options. Once approved, your chosen lender handles the process, including paying out the old loan, arranging the discharge of the existing mortgage and registering the new one.

If you refinance with a new lender, the loan is treated as a new application, which usually means a longer process and potential discharge and application fees.

Refinancing with your current lender isn’t necessarily faster either. You’ll still usually need to provide up-to-date documents, such as payslips and bank statements, and submit a full application. It would be treated as a new loan. However, it can be cheaper, as there are typically no discharge or registration fees.

Overall the process may involve fees such as discharge fees, application fees, settlement fees or break costs if you are leaving a fixed-rate loan early, so it’s worth weighing up the savings against the costs before making the switch.

Homeowners often refinance for a lower interest rate, better features such as an offset account, or to unlock equity. More than 640,000 Australians refinanced in the past year alone, according to Australian Bureau of Statistics data.

Depending on your financial situation, refinancing your home loan can come with a range of potential benefits, including:

• A better interest rate. Shopping around affords you the luxury of finding a home loan with a lower interest rate.
• Avoiding a high revert rate. Fixed-rate and introductory-period loans generally revert to a standard variable interest rate after a predetermined amount of time, which is often much higher than the market average rate. Consider reviewing your fixed interest rate a month or two prior to the end of the fixed rate period, as you may have to pay a break fee if refinancing before expiry.
• Access to more loan features. Your current home loan may not offer the features you now might find useful such as an offset account, a redraw facility, the option to split your loan or the ability to make additional repayments. By shopping around and refinancing, you can end up with a home loan that has the features you want.
• Debt consolidation. If you have an array of outstanding loans with higher interest rates than your home loan, you could consider refinancing in order to consolidate all of your debt into one loan, with a lower interest rate. However, it’s worth noting that you may pay significantly more in interest charges over the life of your home loan if you consolidate your debts in this way.
• Adaptability and flexibility. Refinancing gives you an opportunity to reassess your loan term and home loan repayment frequency, along with your ability to make extra repayments. If done smartly, this could potentially save you money over the life of the loan.

Refinancing a home loan can reduce your interest rate or improve loan features, but it often comes with a range of costs that can outweigh the benefits if you refinance too frequently or have a relatively high LVR.

Refinancing can be completed in as little as two to three weeks, but it can take up to six weeks or longer if additional checks or documentation are required. The exact timeframe depends on your lender and how complex your application is.

If your lender offers FASTRefi, the settlement can happen within just a few days of signing the loan documents. But this service is limited to straightforward owner-occupier and investment home loans.

For many borrowers, reviewing your home loan once a year is a practical way to check whether it still meets your financial goals. But you can refinance your home loan anytime as long as you meet your lender’s credit requirements. It’s important to weigh up the costs and benefits and impact on the credit score before making the switch.

For more tailored advice on when refinancing could benefit you, you may want to consider speaking to a financial advisor or one of our mortgage brokers.

Refinancing costs can include discharge fees, as well as application, valuation and settlement fees, depending on whether you’re switching lenders or refinancing internally. You may also need to pay break costs when exiting a fixed rate loan early, which can run into the thousands.

In some cases, borrowers may also be able to negotiate with their new lender to reduce or waive certain upfront refinancing costs.

Some common costs may include:

• Discharge fee or settlement fee. An administration fee that covers your current lender’s costs.
• Application fees. An upfront fee for processing and assessing a new loan application.
• Valuation fee. A fee that covers the costs of valuing your property.
• Ongoing fees. Regular administration and account-keeping fees that can be annual or monthly. These may be higher if you have a ‘package’ home loan that includes a credit card or offset account.
• Break or exit fees. A penalty fee that may be charged by your current lender for terminating a fixed rate loan contract early (i.e. prior to the end of the stipulated fixed rate period). Not applicable for home loans with variable interest rates, but may apply to the fixed rate component of a split rate home loan.
• Mortgage registration fee. Government fee to register a new mortgage, which will vary depending upon your location.
• Additional costs. These may include costs for title searches, surveys and more.

Check the terms and conditions of your home loan for a breakdown of the fees and changes that may be applicable.

In most cases, you won’t need to pay stamp duty when refinancing, as it involves switching home loans rather than buying a property.

However, stamp duty may apply if the property title or ownership details change, or if you increase your loan amount, in which case duty may be payable on the additional amount.

Speak to one of our expert mortgage brokers or your state’s relevant revenue office for more information on stamp duty.

It’s usually a good idea to refinance with at least 20% equity in your home to avoid paying lenders mortgage insurance (LMI). Generally, the more equity you have, the better your chances of securing a better deal and being charged a lower rate. If you have less than 20% equity, you’ll most likely need to pay LMI again, as it isn’t transferable between lenders.

Refinancing can affect your credit score, as lenders usually run a ‘hard credit’ enquiry when you apply to refinance a home loan. This type of credit check can cause a small, short-term dip in your score.

Generally, one or two credit enquiries a year won’t cause concern. However, multiple enquiries in a short period can be a warning sign to lenders and may reduce your credit score. This is because each hard enquiry stays on your credit file for up to five years, regardless of whether the application is approved.

If you haven’t applied for other credit recently and continue to make repayments on existing commitments on time, refinancing is unlikely to have a significant long-term impact.

Before you submit any home loan applications, it can help to work with one of our mortgage brokers, who can review your credit report without impacting your score.

When refinancing, you should consider the total cost of switching, your loan-to-value ratio (LVR), if lenders mortgage insurance (LMI) will apply, and whether the long‑term savings justify any upfront fees and costs.

It’s worth looking at:

• Speaking to one of our mortgage brokers. One of our expert mortgage brokers can run a home loan health check for you to see if they can find a lower rate option.
• The cost of refinancing your home loan. Check which break penalties, exit fees and legal fees you may be on the hook for if you refinance, and investigate which fees the new lender is likely to charge you (e.g. application fees).
• Compare the costs. Consider if the costs of refinancing (such as your old loan’s break fees and the new loan’s administrative fees and additional costs) outweigh any perceived benefits of refinancing. For example, it might be worth paying a break fee if you can save thousands of dollars over the life of the loan through lower interest rates, lower annual fees and a different repayment frequency. However, if it’s going to cost you more than you could save to refinance, it may not be the right move at this point in time.
• Your current LVR and whether or not you require LMI. You can’t transfer LMI to another lender as it’s an insurance policy designed to cover only the lender. So, if your LVR is higher than 80%, you’ll have to sort out LMI all over again.

You generally don’t need a conveyancer or lawyer to refinance, as they typically get involved in case of transfer of property ownership, while in the case of refinancing, you’re simply changing home loan contracts.

However, if a refinance also involves a change of title, such as adding or removing someone from the title, a conveyancer will be required.

Still, as a home loan contract is a legal document, you may feel more comfortable having it reviewed by a legal professional. Keep in mind, however, that this will add to your total home loan costs.