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Everyone knows that it pays to shop around when it comes to home loans, and this still holds true even once you’ve got one in place. If you find a home loan that you think could offer better value than your current one – whether due to a lower interest rate, lower fees or a richer feature offering – you may want to consider refinancing your home loan.

But how does refinancing work? How much does it cost, and can anyone with a home loan refinance? Read on to learn about the ins and outs of home loan refinancing.

How to refinance a home loan

Selling Houses Australia host, Andrew Winter, gives a brief overview of how refinancing works, and what the refinancing process looks like.

What is home loan refinancing?

Refinancing is the process of replacing your existing home loan with another, ostensibly ‘better’ home loan from either your current lender or a different financial institution.

To properly explain refinancing, let’s quickly cover the difference between your home loan and your mortgage.

Your mortgage is the contractual agreement you have with the lender who gave you your home loan, which:

  • Specifies the property as security against your home loan
  • Recognises you as the conditional owner of the property as long as you continue to meet the terms of the agreement
  • Gives the lender the right to repossess it if you don’t meet the terms of the agreement (e.g. default on your home loan repayments).

Your home loan is the loan you took out in order to purchase your property and linked to your mortgage. It’s a financial product just like a credit card or a personal loan.

If you refinance with the same lender, you’ll have a new loan but keep your existing mortgage, albeit with some potential modifications based on the nitty gritty of your new home loan. Whereas if you refinance with a different lender (which is known as external refinancing), you’ll have a new home loan and a new mortgage with a new lender.

External refinancing in Australia: By the numbers

According to the Australian Bureau of Statistics (ABS), the seasonally adjusted value of external refinancing for total housing in May 2022 hit $17.1 billion, representing a month-on-month increase of 3.1% and a year-on-year increase of 16.6%.1

For owner-occupiers, the total value of external refinancing reached $11.5 billion; for investors, it was $5.5 billion.external-refinancing-in-australia

How does refinancing a home loan work?

The process of refinancing your home loan will vary depending on whether you’re refinancing internally (with your current lender) or externally (with a new lender).

If you’re refinancing internally, the process may be simple as your lender already has all your information and documentation in the one place. Additionally, an internal refinance can be more akin to a renegotiation of your home loan rather than a full-blown product switch, and it’s generally simpler to deal with a familiar lender than one you’ve never dealt with before. You may also incur fewer or smaller fees by refinancing internally, but this will vary from lender to lender and from loan to loan.

External refinancing, on the other hand, will generally be a more complex affair, as it will involve dealing with two lenders, one of whom you likely don’t have a relationship with yet. Porting your mortgage from one lender to another can be a lengthier process, and you may incur more or larger fees for the privilege. These can potentially include discharge fees, break costs (if you’re on a fixed rate home loan) and other lender charges. That being said, at any given time you may see certain lenders trying to entice new customers by offering cashback when you refinance.

Whichever method of refinancing you decide to pursue, you should assess all your options and make sure you find a home loan that offers you better value than your current one.

Pros of refinancing

Some common benefits of refinancing can include:

  • A better interest rate. Shopping around affords you the luxury of finding a home loan with a lower interest rate.
  • Cashback offers. Lenders may also offer a cashback deal in exchange for your home loan account, which can provide a nice cash boost in the short term. However, you shouldn’t sign up for a low-value home rate solely because there’s cash to be had.
  • Avoiding a nasty revert rate. Fixed rate and introductory-period loans generally revert to a standard variable interest rate after a pre-determined amount of time, which is often much higher than the market average rate. Refinancing before your fixed rate or introductory period ends can help you get the ‘best of both worlds’, so to speak.
  • Refinancing gives you an opportunity to reassess your loan term and home loan repayment frequency. If done smartly, this could potentially save you money over the life of the loan.
  • Access to more loan features. Your current home loan may not offer features such as an offset account, 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 the one loan, with a lower interest rate.

Cons of refinancing

Some potential drawbacks of refinancing may be:

  • Break costs. If you refinance from a fixed rate loan before the fixed term is up, you could incur significant break costs, depending on the fixed term left and the size of your home loan.
  • Fees. Even if you’re currently on a variable rate home loan and won’t have to pay a break fee, the fees involved with taking out a new home loan all apply in the event of a refinance, so you’ll need to be prepared to fork out for things like property valuation fees, legal fees and documentation fees.
  • LMI. Lenders Mortgage Insurance (LMI) can make your regular home loan repayments noticeably larger. Depending on the specifics of your financial situation, you may decide that your loan-to-value ratio (LVR) isn’t good enough to refinance just yet, as an LVR greater than 80% will generally attract LMI.

How to refinance a home loan

Generally, the process to refinance a home will involve the following steps:

  1. Research

Find out the details of your home loan, including your current interest rate and mortgage repayments, as well as your potential break costs, and determine what changes could assist you in meeting your personal and financial goals.

  1. Compare

Use our home loans comparison tool to assess your options and look for a great-value product based on its rates, fees, features and more.

  1. Speak to an expert

Our home loan consultants can answer some of the burning questions you might have about refinancing. They may also be able to help you negotiate a better rate with your existing lender or refinance to a different one.

  1. Valuation

Have your property evaluated, especially if you’ve completed renovations or your last valuation was more than 12 months ago. You may find that your property value has changed noticeably.

  1. Application

Undergo a full application process, credit analysis, documentation and assessment with either your current lender or a new financial institution. Even though you’re a card-carrying homeowner now, you’ll still be assessed against the same stringent lending criteria as everyone else.

  1. Legal documents

Have your financial institution’s required documents at the ready to support your application. Ensure you meet the lender’s eligibility criteria.

  1. Approval

Receive unconditional approval from a lender to refinance.

  1. Settlement

When refinancing, your new lender will replace the old lender on the title deeds to the home and payout the old lender’s loan amount with the new loan funds.

When can you refinance a home loan?

You can usually refinance your mortgage at any time, though it’s generally a good idea to have at least 20% equity before refinancing (and subsequently an LVR smaller than 80%). If you’re on a fixed rate home loan, you may want to wait until your fixed term expires before doing so in order to avoid expensive break fees.

However, there are several other factors that you may want to consider before deciding to refinance, including:

  • Your existing home loan. If you want to refinance, check with your current lender to see if you can negotiate a cheaper interest rate. This is also something a mortgage broker may be able to assist you with. This could save you time and money if it works out for you, as you won’t have to move to a new lender and undergo their full application process.
  • 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 during the application process (e.g. application fees).
  • Compare the costs. Consider if the costs of refinancing (like 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 you took it out to protect. So, if your LVR is higher than 80%, you’ll have to sort out LMI all over again.
  • Speaking to a broker. A broker may be able to negotiate a more favourable interest rate or deal with your current lender, or help you find a better home loan with a new one.

Frequently asked questions about refinancing

Do I need a conveyancer or lawyer to refinance?

No, you will not need the assistance of a conveyancer or lawyer in order to refinance, as they typically only get involved with sales contracts and the settlement process. If you’re simply changing home loan contracts, there’ll be no need for a lawyer or conveyancer.

How long does the refinancing process take?

The length of the refinancing process can depend on your lender. Some may get it done in as little as a week while others will take a bit longer, sometimes up to 60 days or more.

The process of refinancing your home loan internally may only take around the same time as your initial home loan application, but if you’re refinancing externally with a different lender, that may take longer to be processed and approved.

How much does it cost to refinance a home loan?

Refinancing will never be free, but the costs will vary depending on the specificities of your financial situation and what your refinance looks like.

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.
  • Mortgage registration fee. The cost for registering the lender’s mortgage on your property’s title.
  • LMI. This is generally only applicable for loans with an LVR greater than 80%. LMI protects the lender, not you, in the event that you can’t afford to make your fortnightly or monthly repayments.
  • Ongoing fees. Regular administration and account-keeping fees that can be annual or monthly.
  • Break or exit fees. A penalty fee that may be charged by your current lenderfor terminating a fixed rate loan contract early (i.e. prior to the end of the stipulated fixed rate term).
  • Additional costs. These may include costs for title searches, title insurance, surveys, taxes, credit report charges and more.

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

How much equity do you need to refinance?

When it comes to refinancing, you won’t need a traditional deposit but what you will need is equity in your current home – equity meaning the portion of your home you ‘own’ based on how much you’ve made in home loan principal repayments.

It’s usually a good idea to refinance with at least 20% equity in your home to avoid having to pay LMI. The better your credit and the more equity you have in your home, the better the chance there is that you’ll get an improved deal and be charged a lower interest rate.  If you have less than 20% equity, you will most likely need to pay LMI again as this isn’t transferrable between lenders.

Can you refinance a fixed rate home loan?

Yes, you can refinance a fixed rate home loan. However, you should be wary of break fees, which are charged if you refinance or end the loan during the stipulated fixed rate period. These can cost as much as tens of thousands of dollars in the most extreme cases.

Do I need to pay stamp duty again when refinancing?

Stamp duty is a type of tax imposed by states and territories during the sale of a property and is therefore not a home loan cost, but rather a home buying cost. Since refinancing involves switching home loans, you will generally not have to pay stamp duty when refinancing.

A possible exception to this is if the title of the property or ownership details are changing. If the name of the borrower changes, stamp duty may then apply. Mortgage registration fees can also apply.

Speak to a certified home loan specialist, a mortgage broker or your state’s relevant revenue office for more information on stamp duty.

Does refinancing impact your credit score?

Unless you’re a serial refinancer, refinancing your home won’t permanently affect your credit score. A formal credit enquiry is required when refinancing, and it will stay on your credit history for five years.

However, you can build up your credit score easily if you continue to make regular and on-time home loan repayments to your new lender. If you’re refinancing to consolidate your debts, this can also have a positive impact on your credit score.

It’s important to note that a one-off rejection for a home loan refinancing application might not hurt your credit score, but multiple failed applications almost certainly will. So, make sure you’re ready to apply.

Is it better to refinance with your current lender?

Refinancing with your current lender may not necessarily give you a better interest rate, but it may be quicker and easier than refinancing externally. Your current lender has all your information, so the process will probably be much simpler than if you switched to a different financial institution.

However, a different lender might be offering something better, and there are hundreds of home loan products on the market. Plus, nowadays it can be quick and painless to refinance with another lender, so don’t rule out the idea of refinancing externally just because it might not be quite as quick.

Thinking of refinancing? We can help you explore your options

So, what are you waiting for? Compare home loan products with Compare the Market today and get refinancing!


  1. Australian Bureau of Statistics. Lending Indicators. May 2022.
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