Read our guide to better understand if there is any value in refinancing your home loan
Even if you’re as careful as you can be when selecting a home loan, there are always circumstances when a refinance could be in order. Maybe a new addition to the family has come along, requiring some financial belt-tightening, or maybe you’re unhappy with your current lender or loan features.
In fact according to the Mortgage and Finance Association of Australia’s Home Finance Index for March 2013, almost one quarter of Australians have refinanced in the last two years.
The biggest reasons are:
Home renovations
A better deal or rate
To consolidate existing debts
Buying or building a new home
But as we know, refinancing isn’t as simple as finding a better interest rate. Refinancing comes with costs, so you should work out if these are outweighed by the potential benefits.
Our step-by-step guide to refinancing
The true cost of refinancing
Fees charged by your current lender
Discharge fees
Exit fees (These now only apply to fixed rates and loans entered into before July 2011)
Registration fees
Fees charged by your new lender
Application fees
Valuation fees
Settlement fees
Legal fees
Lender’s Mortgage Insurance, even if you’ve paid it for your current lender
For those living in VIC, NSW, TAS, WA or SA, in some cases stamp duty will need to be paid on the new mortgage.
Estimates about the cost of refinancing vary between $500 to over $3000, so you should ask your current lender, as well as your potential lender what costs you’ll be up for before considering refinancing.
Related: How to refinance with your current lender
Should I refinance for a lower interest rate?
It’s no surprise that this is one of the most common reasons why Australians refinance their mortgages, but it’s not always the best. Before you leave your home loan in search of a lower rate, make sure you calculate all of the fees and charges which will be associated with your new loan, as well as comparing the interest rates.
Also take into account your current home loan features. If you stand to lose features such as free redraws, branch access, free additional repayments or a 100% offset account, you might need to carry out some number crunching first to see the costs vs rewards.
Some industry experts give the rule of thumb that if the savings made from refinancing take more than two years to start paying off then refinancing may not be the best choice. In some cases it’s a good idea to approach your current lender first, tell them you’re thinking of refinancing, and asking for a lower rate.
Should I refinance if I’m renovating?
Refinancing to renovate is another popular reason why borrowers leave their current lenders for greener pastures. There are a number of loans available for those refinancing for renovations: construction home loans and line of credit home loans. A construction loan is more appropriate for structural renovations where serious work is carried out to the home including new piping, wiring, walls or adding a floor to the home.
Where smaller, cosmetic renovations are carried out such as the installation of a new bathroom or kitchen, products such as a line of credit loans or even personal loans can be used.
Below are some of the reasons why refinancing can be a good idea for renovating:
To access the equity in your loan to fund the renovations. If your home is valued at more than the amount you owe on your loan you can refinance your loan to access that equity and then draw down on that amount to pay for your renovations.
To increase cash flow during the renovation process. When you are renovating your home you are channelling a lot of your extra money into contractors, fixtures and fittings, and this can be a good time to refinance to an interest only loan to reduce the amount you need to pay towards your loan each month.
Should I refinance to consolidate my debts?
Another popular reason to refinance is to consolidate debts. This may involve adding a car loan, credit card loan or personal loan into your mortgage to take advantage of the lower rate typical of a home loan.
While the benefit can mean being able to rapidly pay off your debt, this kind of refinance requires strict discipline. If you roll your credit card debt into your mortgage for example, but then make regular payments, the shorter term debts you consolidated will now be paid off with your mortgage, taking as long as 25 - 30 years.
However, if additional repayments are made towards the loan then this will work to pay off the debt.
Matthew’s debt doubt
Matthew has a $300,000 loan remaining on his home. He also has a credit card debt which has gradually spiralled out of control, and sits at $20,000. Matthew wants to refinance and consolidate his credit card debt into his home loan, increasing the balance to $320,000. While he may think this is the best option to get him out of strife, Matthew’s overlooking how interest will impact his debts.
$20,000 at 5% interest over 25 years = Interest of $15,075 (monthly repayments of $117)
$20,000 at 18.5% interest over 5 years = Interest of $10,799 (monthly repayments of $513)
As can be seen, while the monthly repayments are much lower with a lower interest rate over 25 years, the interest Matthew will pay is much higher.
In this case sometimes a balance transfer is a good option to take.
How to pay off your credit card debt
Should I refinance for more flexibility?
A basic home loan can suit you when you first have a mortgage because it allows you to concentrate on making repayments without being distracted or being charged additional fees. However if you are ready to really take control of your mortgage, you may want more flexibility with a loan with an offset account for example. This will allow you to combine all of your savings and transaction accounts into your home loan account to offset your interest and make sure you pay minimal interest.
Should I refinance if I can’t afford my mortgage?
If you have found that you are struggling with your repayments you may not think you are in a position to refinance your mortgage. However if you approach your lender when you first find you are struggling they are likely to do everything they can to avoid you defaulting on your loan.
If you find you can’t comfortably meet your mortgage repayments any more you might be able to refinance your loan to extend the term and reduce the payments, or switch to a more basic loan with a lower interest rate.
What happens when you refinance
In order to refinance your existing home loan you will first have to undertake considerable research so that you can find a new loan that fits in with what you are looking for. Once satisfied the new loan will deliver a better result than your old mortgage, you will have to make an application the same as you lodged for your first home loan. Once the new loan is approved, the first step will be to pay off the old home loan in full. You’ll then start to pay out your new loan.
What are some of the loans available to me?
When you are refinancing you may only have access to certain types of loans. Below is a comparison of some of the refinancing loans in the market.
Interest Rate (p.a.)
Comp Rate^ (p.a.)
App Fee / Annual Service Fee
Max LVR
Monthly Payment
State Custodians Standard Variable Offset Loan - 80% to 90% LVR
Refinance your home loan with this award winning lender. 100% offset account facility.
4.69%
4.90%
$0 / $299
90%
Loans.com.au Dream Loan Express Home Loan -
One of the leading low rate home loans in the market with a $0 application fee. Home loan suitable for both refinancing and purchases.
4.55%
4.57%
$0 / $0
80%
NAB National Choice Package Home Loan - 2 Year Fixed
A fixed rate package home loan with no application fee.
4.89%
5.59%
$0 / $0
80%
HSBC Home Value Loan
With its low variable rate and no monthly fees, the HSBC Home Value Loan could be a refinance option for you.
4.74%
4.76%
$0 / $0
80%
Bankwest Online Home Loan
A low variable home loan rate with no ongoing fees. No application fee for a limited time. Exclusive online offer only.
4.88%
4.89%
$0 / $0
80%
Newcastle Permanent Fixed Rate Home Loan - 3 year fixed
Enjoy a low interest rate home loan. Borrow up to of your home loan value and pay no application fee.
4.69%
5.35%
$0 / $0
95%
Citibank Fixed Rate Loan - 2 Year Fixed Rate
A great fixed rate loan for 2 years. Borrow up to 90% of your home loan value.
4.89%
6.27%
$399 / $96
90%
UBank UHomeLoan (Variable Rate)
A great option with flexible repayment options and redraw facility.
4.62%
4.62%
$0 / $0
80%
State Custodians Peak Performance Offset Home Loan
Consider a low rate variable refinance option with State Custodians. No application fee.
4.49%
4.82%
$0 / $299
80%
ME Bank Standard Fixed Rate Home Loan - 3 Year Fixed Rate (Eligible Members)
A great refinance option if you are an eligible member of a super fund. No application or account keeping fees.
4.79%
5.25%
$0 / $0
95%
HSBC Fixed Rate Home Loan - 3 Year Premier Fixed Rate
A 3 year fixed rate home loan which reverts to a discounted variable rate. Enjoy the service of a Relationship Manager to assist in your refinance.
4.79%
5.52%
$300 / $420
80%
Aussie Mortgage Broker Deal
Aussie Mortgage Broking deal. Compare from 18 major lenders.
4.64%
4.98%
$0 / $0
90%
ANZ Simplicity Plus Basic Home Loan
Refinance with your loan with a low variable rate and no ongoing fees.
5.18%
5.23%
$600 / $0
80%
RAMS Low Rate Home Loan
A basic variable rate home loan offer from RAMS.
5.04%
5.45%
$595 / $240
95%
Bankwest Premium Select Home Loan - $200k to $500k (Up to 80% LVR)
A low interest home loan suited to refinancers with a longer term discount offer.
4.99%
5.00%
$0 / $0
80%
NAB National Choice Package Variable Rate - ($250,000 and above)
Consider a packaged home loan option with a great interest rate.
5.08%
5.46%
$0 / $0
80%
ANZ Fixed Rate Home Loan - 2 Year Fixed Rate
If you're looking to fix and interest rate for the next 2 years, ANZ offers this great rate with up to LVR for existing customers.
5.04%
5.98%
$600 / $120
90%
Homeloans Ultra Plus Home Loan - Above 75% LVR
Refinance with a great interest rate offer from Homeloans
5.07%
5.39%
$0 / $330
75%
AMP Bank Essential Home Loan
A competitive variable home loan offer with no monthly fee.
5.15%
5.17%
$0 / $0
80%
Beware of the dangers of refinancing
Before deciding to refinance there are some considerations that you should take into account. One of these is that a lower interest rate alone does not necessarily mean that the mortgage will be cheaper than the loan you already have. Some loans are promoted on the basis of a lower interest rate but when you look closely at the fine print you may find that the fees and charges will more than make up for the lower interest rate. Also take into account the comparison rate, which takes into account more of the fees.
The lower interest rate may also mean a loss of flexibility in your home loan. You may lose the ability to make additional payments when you have spare money to invest such as any bonus in wages or tax returns, or lose valuable features such as offset accounts. This means you must be careful in what you are doing and know exactly what the result will be if you decide to go ahead.
A further consideration will be the cost of any exit fees that are charged before you can be released from your old home loan obligations. In the case of new loans entered into after 1 July 2011, these exit fees only apply to fixed rate loans. Sometimes these fees can be quite substantial, especially in the early years of your existing mortgage. On the other hand some lenders discontinue the exit fee after you have been repaying the loan for five years or more.
Where to next?
How to save when refinancing
Is now actually a good time to refinance?
The hidden costs of switching
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