Home refinancing is the process of replacing your current mortgage with a better one. In this guide, we explain when refinancing makes sense, how lenders assess applications, and how to compare offers correctly. We focus on first home owners who want to cut costs without introducing new risks. We show how to calculate breakeven, what documents to prepare, and how to lock in savings after settlement.
What Is Home Refinancing and How It Works
Refinancing means taking out a new home loan to pay out the existing one. The purpose is to lower total interest, improve features, or align the loan with your goals. For first home owners, it can reset an early decision that no longer suits your budget. The result should be measurable savings or meaningful flexibility that you will actually use.
How a Refinance Replaces Your Existing Loan
Your new lender assesses your application, orders a valuation, and issues loan documents. At settlement the new lender pays out your old loan, your existing mortgage is released, and the new mortgage is registered. Your old account closes and repayments start under the new contract. Any remaining direct debits should be moved to your new linked account.
Comparison Rate vs Interest Rate
The interest rate shows the price of the loan without most fees. The comparison rate bundles the rate with most fees into a single number for a standard term and repayment type. Always compare offers on the same basis so total cost is clear. Use the comparison rate to shortlist, then check the fee schedule to confirm what is included and what is not.
Features That Matter Offset Account and Redraw
An offset account reduces interest by offsetting every dollar you hold in the account against your loan balance. This is powerful when your salary lands in offset and stays there before bills go out. A redraw facility lets you access extra repayments you have made, subject to limits and processing rules. Choose features you will consistently use rather than options that look attractive but add fees.
When First Home Owners Should Consider Home Refinancing and Why
Rate Drift and Loyalty Penalty
Lenders often price new customers more sharply than existing ones. Over time, the gap between your rate and market pricing can widen. If repricing requests do not close the gap, switching may deliver a clear monthly saving. Track your current rate and compare with new customer offers from several lenders.
End of Fixed Term and Revert Rate
When a fixed period expires, the loan moves to a revert rate. This rate is often higher than competitive market rates. If you want repayment certainty again, you can refix. If you want flexibility, consider a variable or split option. Either way, you should test the breakeven against any costs that apply.
Equity Shift and LVR at or below 80 Percent
As you repay the loan and property values change, your equity position moves. If your Loan to Value Ratio falls to 80 percent or lower, you may unlock sharper pricing and avoid Lenders Mortgage Insurance. A fresh valuation can confirm this position. If your LVR is above 80 percent, weigh the cost of LMI against the savings from switching now.
Debt Consolidation with Demonstrable Net Saving
Consolidating higher rate debts into the home loan can simplify repayments. The key is to prove a net saving after fees and to avoid extending short term debts across a long home loan term. Use a switching calculator to model total interest over time. Commit to a higher repayment if you consolidate so the saving is realised.
Factors Lenders Consider for Home Refinancing Applicants
Serviceability Buffer and Assessment Rate
Lenders test your capacity to repay at an assessment rate that includes a buffer above the product rate. This protects you against possible rate rises. If your budget is tight at the assessment rate, improve your position by reducing discretionary spending and paying down small debts. Accurate application data helps prevent delays.
Loan to Value Ratio and Lenders Mortgage Insurance
Your LVR is the loan amount divided by the lender assessed property value. Above 80 percent, Lenders Mortgage Insurance may apply and can reduce or remove the benefit of switching. Below 80 percent, lenders compete harder on price. Keep records of improvements that may support a higher valuation.
Income Stability Expenses and Repayment History
Lenders verify your income using payslips, bank statements, and sometimes employment checks. They cross check declared expenses with your transaction history. Strong repayment conduct on your current loan and other credit is a positive signal. Make sure all documents are clear, current, and complete.
Property Valuation and Security Acceptability
The lender orders a valuation to confirm security and value. If the valuation is lower than expected, your LVR rises and options narrow. You can supply recent sales evidence to help the valuer. Be realistic about market conditions and allow for conservative assessments.
Your Switching Costs and How to Minimise Them
Break Costs on Fixed Loans
Exiting during a fixed period can trigger break costs. Ask your current lender for a written estimate before you apply elsewhere. If costs are high, consider waiting until closer to the end of the fixed term or switching part of the loan only. Factor break costs into breakeven and payback calculations.
Discharge Application and Settlement Fees
Your current lender charges a discharge fee to release the mortgage. New lenders may charge application and settlement fees, and some waive them. Capture every fee and waiver in writing. Include ongoing account fees in your comparison so the result reflects real life cost.
Government Registration and Release Fees
Mortgage release and registration fees are set by state land registries and update each financial year. Check the current schedule or use the official calculators. These amounts are not negotiable and must be included in your calculation. If you are close to a new financial year, confirm which schedule will apply to your settlement date.
Payback Period and Breakeven Calculation
Use an official switching calculator to compare the current loan with the new offer. Add every fee, then measure how many months of lower repayments are needed to recover the costs. If the breakeven is short and the loan delivers features you will use, the case to switch strengthens. If the breakeven is long, consider negotiating again or waiting.
Features That Actually Save Money over Time
Offset Account
Direct your salary to a 100 percent offset account and pay expenses from it. The balance in offset reduces interest daily, which compounds into a material saving over time. The benefit depends on how much stays in offset and for how long. Keep the account fee low so fees do not erode the benefit.
Redraw Facility
Redraw lets you access extra repayments you have made. It can act as a safety valve for short term needs while keeping interest down. Check any limits on minimum redraw amounts and processing times. If you rely on immediate access to funds, confirm how redraw works for your lender.
Fixed Variable or Split Structures
Fixed loans provide repayment certainty and can suit tight budgets. They can also limit extra repayments and involve costs if you exit early. Variable loans allow flexible repayments and often make switching simpler. A split structure combines certainty with flexibility and can be tailored to your cash flow.
Decision Framework for First Time Home Refinancers
Rate Match vs Full Refinance
Start by asking your current lender to match or beat a competitive offer on total cost. If they cannot, move to a full refinance with a lender that meets your price and feature needs. Keep a record of every quote and offer for clarity. Decide with objective numbers rather than brand familiarity.
Equity Thresholds and LMI Trigger Points
If your LVR sits above 80 percent, Lenders Mortgage Insurance may be required. That cost can outweigh the benefit of switching. If you are close to 80 percent, a valuation or extra repayments may tip you under the threshold. Model both scenarios before you choose.
Breakeven and Payback Rules
Confirm a net saving after all fees. Set a maximum acceptable breakeven period based on your plans for the property. If you expect to move or renovate soon, a long breakeven weakens the case to refinance. If you will stay put for years, a moderate breakeven may be acceptable.
How to Compare Offers the Right Way
- Align term and repayment type for every quote, then use the comparison rate to shortlist the lowest total cost options.
- Capture every fee and any waiver in writing, including application, settlement, and account fees, and add them to your calculation.
- Run a sensitivity check by adding possible rate rises to see how repayments and breakeven change.
Refinancing Logistics and Timeline You Can Expect
Documents You Will Need
Bring clear, current versions of the following items. Submitting complete documents reduces delays and repeat requests.
- Identification documents
- Recent payslips and bank statements
- Home insurance policy or certificate
- Current loan statements and payout estimate
Valuation and LVR Confirmation
Depending on the property and lender policy, the valuation may be a desktop model, a kerbside view, or a full internal inspection. The valuer provides a figure that the lender uses to compute LVR. If the number is lower than you believe is fair, you can supply recent comparable sales. Approval settings will reflect this valuation, not a desired target.
Discharge Authority Settlement and Account Handover
You will sign a discharge authority so the current lender can release the mortgage. On settlement day, the new lender pays out the old balance and registers its interest. Your old loan closes and your new account becomes active. Adjust any automatic payments to the new account so cash flow continues smoothly.
After You Refinance Lock in the Win
Offset Setup and Salary Sweep
Open or activate the offset account immediately. Redirect your salary and set bill payments from the offset so your average balance stays higher for longer. This reduces daily interest and accelerates principal reduction. Review the account fee to confirm the benefit exceeds the cost.
Automatic Extra Repayments
If your budget allows, set repayments above the minimum by a small fixed amount. This reduces total interest and shortens the loan term without major lifestyle change. If cash flow varies, consider occasional lump sum repayments instead. Track progress with your lender’s amortisation or repayment tools.
Annual Rate Review and Switching Trigger
Put a calendar reminder to review pricing each year. Compare your current rate with new customer offers from multiple lenders. If a gap opens and your lender will not match, repeat the structured comparison and switch if the numbers support it. A light annual review helps protect your savings over time.
FAQs
What is a good LVR to refinance at?
An LVR of 80 percent or lower usually unlocks sharper pricing and avoids Lenders Mortgage Insurance. If you sit above 80 percent, model the LMI cost against your likely savings and consider whether to wait until equity improves.
Can I refinance if I fixed my rate recently?
You can apply, but break costs during a fixed period can be material. Request a written estimate from your current lender and add it to your breakeven calculation before you proceed.
Will refinancing hurt my credit score?
A new enquiry and account will appear on your credit file. With responsible borrowing and on time repayments, the impact usually moderates over time. Avoid multiple simultaneous applications.
How long does a refinance take?
Timeframes vary by lender, valuation method, and discharge processing. A well prepared application with complete documents typically settles within several weeks. Complex scenarios may take longer.
Do I need a broker or can I go direct?
Both paths can work. Brokers must act in your best interests and can compare options across lenders. Going direct can suit you if you already have a strong offer and want that lender’s specific features.
Sources
- ASIC Moneysmart - Switching Home Loans.
- ASIC Moneysmart - Mortgage Switching Calculator
- ASIC Moneysmart - Comparison Rate
- ASIC Moneysmart - Offset Account
- ASIC Moneysmart - Redraw Facility
- APRA - Update on Macroprudential Settings
- RBA. Lenders Interest Rates
