In this guide, we will explain how refinancing a home loan works in Australia, from your first decision to switch through to settlement with a new lender. The focus is on first time refinancers who want clear, practical steps.
What Is Home Loan Refinancing and What is it For?
Refinancing your home loan means closing your current mortgage and taking out a new one, either with the same lender or a different one. The new loan pays out the old one, and you keep the same property as security the whole time.
In day to day terms, refinancing can help you pay less interest, switch from a fixed rate to a variable rate or the other way around, roll other debts into your home loan, or access some of your equity for renovations or investing. You still go through a full credit assessment, so the lender will look again at your income, expenses, credit history and what your property is worth now.
Why Australians Refinance Their Home Loan
Most Australians refinance to improve the long term value of their mortgage, not just to chase the lowest rate on the market on a single day. Common reasons include:
- Securing a lower interest rate and a better comparison rate than the current home loan
- Moving to a loan with features such as an offset account or redraw facility
- Consolidating personal loans or credit cards into the home loan at a lower rate
- Accessing equity to fund renovations, investments or other large expenses
In a market where the Reserve Bank of Australia adjusts the cash rate in response to inflation and economic conditions, home loan rates change over time. Refinancing lets you realign your loan with current conditions and your own financial position.
Is Refinancing Right For You?
Before you start comparing refinance options, get clear on whether refinancing is likely to put you in a stronger position. Ask yourself:
- Will the interest rate and fee savings be enough to outweigh the costs of switching over the next few years?
- Is your income stable and your credit history in good shape so you are likely to be approved under current lending rules?
- Do you have at least 20% equity so you can avoid paying lenders mortgage insurance again?
If the answer to any of these questions is no, refinancing may still be possible, but you will need to be careful about fees, risk and lender choice.
Overview of the Home Loan Refinancing Process
From a borrower perspective, mortgage refinance in Australia follows a clear sequence. The details differ by lender, but the key steps are similar.
Step 1 - Clarify Your Refinancing Goals
Decide what you want from home loan refinancing. For example, you may want a lower rate, more flexible features, a shorter loan term, or to consolidate other debts. Clear goals help you compare home loans in Australia more effectively and avoid switching for minor short term gains.
Step 2 - Review Your Current Home Loan
Gather your latest loan statements and note your current interest rate, comparison rate, remaining term, fees and features. Contact your lender and ask whether they can improve your rate or move you to a sharper product internally. Sometimes a simple product switch with the same bank can deliver most of the benefit with lower paperwork.
Step 3 - Check Your Equity And Borrowing Power
Estimate your current property value using recent sales data and online tools, then compare this with your loan balance to work out your loan to value ratio. Lenders usually prefer an LVR of 80 percent or lower for refinances. At the same time, use a borrowing power calculator or talk to a broker to check that your income, expenses and debts will support the new loan amount.
Step 4 - Compare Lenders And Home Loan Options
Now compare refinance home loan offers from major banks, customer owned banks, credit unions and non bank lenders. Look at the interest rate and comparison rate, but also review fees, offset accounts, redraw, repayment flexibility and digital service. Mortgage brokers can help you compare multiple lenders, while comparison sites give a snapshot of the wider market.
Step 5 - Calculate Costs And Potential Savings
List the likely costs of refinancing, which can include discharge fees on your current loan, application or settlement fees on the new loan, government charges and possibly lenders mortgage insurance if your LVR is above 80 percent. Then compare these costs against your projected savings from a lower rate or better structure over a realistic time frame.
Step 6 - Prepare Your Documents And Apply
When you decide on a new lender, prepare your documents. Most lenders will ask for identity documents, recent payslips, bank statements, details of existing debts, rates notices and building insurance. You then complete a new home loan application online or with a banker or broker.
Step 7 - Property Valuation And Credit Assessment
After you apply, the lender will order a valuation of your property and complete a full credit assessment. They will review your income, expenses, debts and credit report, and confirm that the new loan remains affordable even if interest rates rise. If everything meets policy, they will issue a conditional then formal approval.
Step 8 - Review And Accept The New Loan Offer
Once you receive formal approval and loan documents, check the interest rate, comparison rate, loan term, repayment type and any special conditions. Ask questions about anything that is unclear. When you are comfortable, sign and return the loan documents so the lender can book a settlement.
Step 9 - Discharge Your Existing Home Loan
Your new lender will usually coordinate the discharge of the mortgage with your old lender. You may need to sign a discharge authority form so the previous lender can release its security over the property. This step closes your existing loan and prepares the title for the new mortgage.
Step 10 - Settlement And Moving To Your New Home Loan
On settlement day, your new lender pays out the balance of your old home loan and registers the new mortgage on the title. From that point, your repayments move across to the new lender and your old loan account is closed. You will receive a settlement confirmation and a first statement from your new lender.
Costs Risks And Common Traps When Refinancing
Refinancing is not always a win. You need to watch for costs and traps that can erode the benefit of a lower interest rate.
Key costs to consider include:
- Discharge and settlement fees charged by your current lender
- Application and ongoing fees charged by the new lender
- Break costs if you end a fixed rate home loan early
- Lenders mortgage insurance if your equity is below 20 percent
There are also practical risks. If property values have fallen and your LVR is high, you may find it hard to qualify for a sharp refinance rate. If you extend your loan term back to 30 years, you may lower your monthly repayments but increase the total interest you pay over the life of the loan. Prominent cashback offers can sometimes distract from higher ongoing costs.
Working With A Mortgage Broker Versus Going Direct
When you refinance, you can either apply directly with a bank or work through a mortgage broker. A good broker can explain complex policies, compare a wide panel of lenders and manage paperwork. However, brokers are generally paid by lenders, so you should ask how they are remunerated and whether they charge you a fee.
Going direct with a lender can suit borrowers who already know the product they want or who are interested in package benefits with a particular bank. Either way, it is important to focus on the long term cost and suitability of the loan, not just a short term discount.
Post Settlement Checklist For Refinanced Home Loans
Once settlement is complete, there are a few housekeeping tasks that help you get the most out of your new mortgage:
- Confirm that your regular repayments, interest rate, repayment date and offset account details match the loan offer.
- Cancel any direct debits linked to the old loan and set up new payments from your salary account or offset account.
- Register for internet and mobile banking and check that your redraw and offset features work as expected.
- Set a reminder to review your rate and fees every 1 to 2 years so that you remain competitive as the market moves.
Frequently Asked Questions
How much can I save by refinancing my home loan?
Your savings depend on the difference between your current rate and the new rate, the fees to switch and how long you stay in the new loan. A refinancing calculator can show you quickly whether the savings are worth the costs.
How long does refinancing a home loan take in Australia?
Most refinances take around 4 to 8 weeks from application to settlement. It can take longer if valuations are delayed, documents are missing or lenders have processing backlogs.
Does refinancing a home loan affect my credit score?
Yes. Refinancing includes a full credit check, so it adds an enquiry to your credit report. One well chosen refinance is unlikely to cause major issues, but frequent applications in a short time can be a red flag.
Can I refinance if I have less than 20% equity?
Yes, it is possible, but your choices are more limited. You may need to pay lenders mortgage insurance or accept a higher rate, so it is important to compare these extra costs with the benefits you expect.
When does refinancing a home loan not make sense?
Refinancing may not stack up if the switching costs are high compared to the savings, if you plan to sell in the near future, or if your finances have recently taken a hit. In those situations, it can be smarter to negotiate with your current lender first or focus on stabilising your budget and other debts.
