Written by If your current home loan no longer meets your needs, switching to a new one could be the answer. Home loan refinance involves replacing your existing home loan with a new one, either with your current lender or a different one. This process allows you to use the new loan to pay off your remaining loan balance, effectively switching your repayments to the new agreement.
How can I refinance my home loan?
The process of refinancing your home loan isn’t dissimilar from what you may have experienced when applying for your first home loan. However, it’s important to be familiar with the process so you won’t be hit with any surprises along the way and potentially avoid delays. The steps to follow in this process are:
- Compare your options with Savvy: before starting your application, you should carefully survey the current mortgage landscape to see which home loan offers are best for you. This may be those which offer lower rates and fees, greater flexibility in terms of their features or anything else. You should always make sure the new loan will help you save money, so run some calculations to see what the benefit of doing so would be.
- Complete your home loan application: once you’ve decided on which lender and loan are right for you, you can get started with your application. This can be done either online, in branch or over the phone in most cases and will likely take a while to complete. The level of detail required on home loan applications is greater than what you might need on smaller finance types like personal or car loans.
- Have your property re-valued: your lender may request another valuation of your property before greenlighting your application, as they’ll want to be certain the house is still in good enough condition to cover the cost of your outstanding loan debt. This is especially the case for those who are refinancing ten years or more after buying their house, as plenty can happen in the intervening years.
- Receive loan approval: if your lender is satisfied with all your documentation, the value of your home and your credit history, they’ll offer you loan approval. This will involve filling out the same forms you did upon your initial mortgage settlement to confirm the new agreement. There may be less involved at this step if you refinance internally with the same lender.
- Settle your loan and pay out your old mortgage: once everything is signed off on by you and your lender, your previous loan will be paid out either by you or your new lender. After this has been done, you’ll have been released from your old mortgage and no longer required to pay interest on it, regardless of how long your previous lender takes to formally close the loan agreement. You can now start paying off your mortgage with your new lender and your refinance is complete.
How much will it cost to refinance my home loan?
The cost of refinancing your home loan will vary depending on a variety of circumstances. Fees you may be charged when refinancing your home loan include:
- Break fee/early repayment fee: a fee charged by your current lender for paying off your mortgage early, this will only apply if your previous loan was a fixed rate mortgage. How much you will need to pay will be based upon how long is left to run on your fixed term, your interest rate and the size of your loan, but could amount to thousands of dollars.
- Discharge fee: lenders often charge this to cover the cost of closing your loan account. It’s a relatively insignificant charge compared to other potential loan fees, but it could set you back between $100 and $400.
- Switching fee: if you’re refinancing internally, lenders may charge a fee for you to move from one mortgage to another. This will typically cost between $200 and $500 but some lenders will waive this charge altogether.
- Application/establishment fee: a charge by the new lender for processing your refinance application. This can cost between $150 and $700 and covers the administrative costs associated with opening your loan account. However, many lenders will waive this fee as part of the agreement.
- Settlement fee: the fee for completing the legal process of transferring the loan from your current lender to the new one. This is a fee paid to the Lands Titles Office in your state and will cost between $100 and $200 depending on where you live in Australia.
- Valuation fee: a fee for having your property assessed to determine its current market value. Lenders will want to make sure your property is still at the value required and in good enough condition to be sold (should it need to be). This revaluation can cost between $100 and $300.
- Registration fee: a fee for registering the new mortgage with the relevant government authority.
These fees can amount to hundreds or even thousands of dollars – not to mention the ongoing fees that will come with your new loan. On top of this, if you need to borrow more than 80% of your home’s value, you may also need to pay lenders mortgage insurance (LMI).
Despite these costs, switching could save you significantly more over the life of your loan, especially if:
- You switch to a loan with a significantly lower interest rate.
- You shorten your loan term to pay off your mortgage sooner.
- You choose a loan with added features that reduce your interest payments.
Example scenario
Alex owns a $600,000 home and initially took out a 30-year mortgage with a 20% deposit ($120,000). This left $480,000 financed by the loan at an interest rate of 7%. After making repayments for three years, Alex’s remaining loan balance is approximately $467,000. He’s now considering refinancing to a lower interest rate of 6%.
Refinancing costs
- Discharge fee: $350
- Application fee: $500
- Valuation fee: $300
- Registration fee: $150
- Total: $1,300
Savings from refinancing
- Current monthly repayment at 7%: $3,212
- New monthly repayment at 6%: $2,914
- Monthly saving: $298
By refinancing, Alex saves $298 per month, adding up to approximately $96,552 in interest savings over the remaining 27 years of the loan. Even after factoring in the $1,300 refinancing costs, Alex comes out significantly ahead.
How does my deposit work when refinancing my home loan?
While a cash deposit is required on your initial home loan (unless you applied with a guarantor who secured the agreement with equity in their property), this isn’t typically the case with a refinance. Over the time spent paying off your mortgage, you’ll have built equity in your property, which will also be impacted by any increase in its value over your repayment term. This equity will serve as the 20% deposit required for your new home loan.
However, there are situations where you may have taken out your home loan initially with a smaller deposit. This may have been the case through a guarantor, government grant such as the First Home Loan Deposit Scheme (FHLDS) or New Home Guarantee or simply by paying LMI. If you haven’t built up enough equity in your property since the point of purchase to cover a 20% deposit, you’ll be required to pay LMI again if you have no guarantor attached or other equity to draw upon.
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Why you might look to refinance your home loan
Get a better interest rate
If it’s been a few years since you looked at your home loan, you may be shocked at how much interest rates have changed. Refinancing to take advantage of lower interest rates can save you thousands.
For example, on a $500,000 principal and interest (P&I) loan taken over 30 years paid monthly, the difference between sticking with a 3.5% p.a. rate and refinancing to a 2.9% p.a. rate after three years is just under $100,000 in interest alone.
Change your loan type
When you first took out your home loan, you may have been struggling as a new homeowner. However, now you realise the honeymoon rate you signed up for has reverted to a more expensive interest rate. or you might want to pay off your loan more quickly.
Don’t be afraid to look around and change the type of loan you have (for instance, a variable or fixed interest rate loan) to find one that better suits your immediate needs. A more appropriate loan could help you pay off your loan sooner and save you thousands.
Reduce your loan term to speed up the journey
You can refinance to increase or decrease the term of your loan. Reducing your loan term by opting for a 25-year term instead of 30 can save you thousands in interest. For example, refinancing your $350,000, 30-year loan at 2.5% after three years to cut five years off your term would save you just under $50,000 in interest.
Renovate your home
There comes a time when your 1980’s kitchen just doesn’t work for you anymore, or you need another garage for the new wheels. Refinancing to pay for home renovations or improvements can be a very cost-effective way of borrowing money and improving the sale value of your home at the same time.
With low interest rates, a variety of lenders offering a range of top-up loans, and mortgages with 0% deposits on offer (using your existing equity as security), there’s never been a better time to compare home loan refinance offers.
Consolidate your debt
Sometimes life can throw you a curveball. All those little loans you’ve taken out over the years can become a heavy burden on your shoulders. Why not sweep them all away in one go (or pay off all your credit cards) with one simple home loan refinance to consolidate all your debt?
If you’ve built up some equity in your home (helped by the rising house prices), you may find you have sufficient equity to refinance to a larger mortgage to help you say goodbye forever to those annoying small debts.
Invest in property for an added income
Owning an investment property becomes possible if you’ve built up equity in your home and owe less than 80% of its value. If this describes you, then it’s possible to buy an investment property using your equity as security. With an interest-only investment home loan, repayments could be quite low, and may be covered by your rental income. There may be considerable tax offset advantages too, which could mean you pay less tax overall (as well as enjoying a useful second income.) Always seek financial advice before making major investment decisions.
Top tips for refinancing your home loan
Frequently asked home loan refinance questions
If you don’t already have one, a mortgage offset account can be a great way for you to reduce the cost of your home loan. Every dollar deposited in your account (which is essentially a transaction account linked to your mortgage) reduces the interest payable on one dollar of your mortgage. For instance, a $30,000 deposit into an offset account would mean the interest on your $500,000 home loan would be calculated based on an outstanding principal of $470,000. This home loan repaid over 30 years at 3% p.a. interest with a $30,000 offset account balance would save you almost $41,000 and trim your loan term by 18 months.
That depends on whether you choose to go with another lender or stick with your existing lender. If you stay with your existing lender, little further documentation is likely to be required (although this depends on how much time has passed and whether your financial situation has changed substantially). However, if you're applying with a new lender, it'll be treated in the same way as any other new application, meaning you'll have to resubmit all your documents.
If you stay with your existing bank or lender, home loan refinance offers can be approved as soon as the same day. However, if you’re changing to another lender (or if you have a more complex financial situation, such as owning property trusts or multiple companies), you can expect the process to take anywhere from several days to several weeks.
A split home loan is ideal when you want to balance stability and flexibility in your repayments. If interest rates are rising, splitting your loan allows you to fix a portion of the loan at a lower rate, while the variable part lets you make extra repayments without penalties. This structure works well for borrowers seeking predictable repayments on the fixed portion while maintaining the freedom to save on interest through the variable side. It’s also suitable for those unsure about committing entirely to one rate type.
If you want to calculate how much you could save by doing so, you can use Savvy’s split mortgage calculator.
Yes – it’s a very good idea to ensure your credit report is accurate, and to correct any mistakes you may find by contacting the credit agency who supplied your report. It’s also important to ensure that all unnecessary debt and credit cards are paid off or cancelled before applying for a new loan.
This is a situation where you need to speak to your lender and explain that you’re suffering mortgage stress. Your lender may be able to suggest an alternative loan structure which could assist you in your current position. Don’t leave it until you’ve missed multiple repayments; talk to your lender as soon as possible.
In Australia, you can technically refinance your home loan at any time – but you should first consider if it is worth it. It’s generally recommended to wait at least a year before looking to refinance to build equity and avoid penalties like early repayment fees. It’s also worth considering the costs of refinancing, including application fees and any additional charges, to ensure the benefits outweigh the expenses.
Refinancing with bad credit is possible but may limit your options. Specialist lenders cater to borrowers with lower credit scores, though these loans often come with higher interest rates and fees. Before applying to refinance your loan, take steps to improve your creditworthiness, such as reducing debts and making timely repayments. Some lenders may accept a guarantor or consider equity in your property when assessing your application. Consulting with a mortgage broker can help identify lenders that match your unique financial profile.
If your refinancing application is denied, it’s important to understand why. Common reasons include insufficient equity, poor credit history or a high debt-to-income ratio, which can be addressed by building equity, improving your credit score or reducing other debts. You can also consult a mortgage broker to explore alternative lenders that may offer solutions tailored to your circumstances.
No – you won’t need to pay stamp duty again when refinancing your home loan if both the borrower(s) and loan amount stay the same. However, if you’re increasing your loan amount or adding someone to the property title during the refinance, stamp duty may apply.
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