With interest rates rising in recent months, many Australians have seen their mortgage repayments increase. As a result, more homeowners are starting to ask whether refinancing their home loan could help them reduce costs or improve their loan structure.
In fact, refinancing activity has surged. Last year, more than 640,000 homeowners switched their home loan, representing a 20 per cent increase compared to the previous year.
So, what exactly does refinancing involve, and how do you go about doing it?
Reasons to refinance
Refinancing involves taking out a new home loan to replace your existing one, either with your current lender or with a different provider. Once approved, the new lender pays off your existing loan and establishes the new mortgage in its place.
Common reasons to refinance include:
- To access a more competitive rate.
- To potentially reduce your mortgage repayments.
- To change loan terms – for example, a shorter loan term may help you pay off your loan sooner, although the repayments may be higher
- To access available equity – for renovations, debt consolidation or for other big-ticket expenses.
- To change your loan structure – e.g. from variable to a fixed-rate mortgage.
- To access interest-saving loan features like offset accounts or redraw facilities.
What’s the process?
The refinancing process is similar to applying for a new home loan, but it can feel much simpler when you know what to expect. Here’s how it typically works:
1. Review your goals
Start by chatting with your broker about why you’re looking to refinance – whether it’s to get a more competitive rate, access equity, or improve your loan features. We can also help you weigh up the potential costs involved, such as valuation fees, exit costs, or break fees if you’re on a fixed rate.
2. Compare your options
We’ll compare a range of lenders on your behalf to help identify loan options that may suit your needs and circumstances.
3. Get your documents ready
Similar to your original application, you’ll need to provide supporting documents like proof of identity, income details, employment information, and a summary of your assets and debts.
4. Submit your application
Once everything is ready, we’ll submit your application. The lender will usually arrange a valuation of your property, and if you’re borrowing more than 80% of its value, lenders mortgage insurance (LMI) may apply.
5. Approval and paperwork
If your loan is approved, you’ll review and sign the final documents before the new lender arranges to pay out your existing loan.
6. Settlement and next steps
Once your old loan is paid out, your refinance is complete. From there, you may be able to benefit from a more competitive rate, improved features, or access to available equity to support your financial goals.
Can I stay with the same lender?
If you’re happy with your current lender, you can absolutely stay with them – especially if your loan still suits your needs and you’re comfortable with the service you’re receiving.
But it’s still worth taking the time to see what else might be available, as rates, features and offers can change over time, and there may be opportunities to improve your overall loan setup.
Some long-term customers may find that newer borrowers are offered sharper rates or promotions – a difference sometimes referred to as the “loyalty tax”. Exploring your options, whether that’s negotiating with your current lender or considering a new one, can help you understand what’s out there and whether you’re still getting a competitive deal.
Like any major expense, it pays to shop around and compare your options to see what might suit you best.
What about cashback offers?
Some lenders may offer incentives, such as cashback offers, to attract new customers – which can be appealing depending on your circumstances.
You should be aware that there may be strict eligibility criteria attached, such as a minimum loan size. Importantly, the loan may not necessarily be better for you financially in the long run, so it’s important to consider the big picture before jumping on a cashback offer.
Is now a good time to refinance?
The decision about whether to refinance depends largely on your individual circumstances and goals. However, with mortgage rates increasing, it may be worth reviewing your home loan at the very least, to consider refinancing if it makes financial sense.
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