How to Refinance a Home Loan in Australia: Step-by-Step Guide

What this job involves

Refinancing means replacing or extending an existing home loan with a new loan. You can refinance with your current lender or switch to a different lender.

The practical task is to compare the proposed loan with your current loan, identify switching costs, check the features you use and assess whether the expected benefit is greater than the total cost. A lender or broker will also assess your financial situation before the refinance can proceed.

What you are trying to do

Start with a clear objective, such as reducing the cost of the loan or finding features that better suit your circumstances. A lower advertised interest rate alone does not establish that refinancing will reduce your overall cost.

Compare the interest rate, comparison rate, repayments, fees, remaining term and features. A comparison rate is a single figure intended to represent the cost of a loan, including the interest rate and most fees.

Check the proposed term carefully. A longer repayment period may increase the total interest and fees, even if repayments appear lower. Consider a term similar to the time remaining on your current mortgage unless you have assessed the additional cost of extending it.

Check whether features such as an offset account or redraw facility are available on the new loan. Compare their fees, interest rate and access rules with your current arrangements.

How to do it

1. Review your current loan. Note the rate, balance, remaining term, repayments, fees and features you use. Ask the lender which costs would apply if you discharge the loan or switch internally, particularly if the loan is fixed.

2. Ask your current lender for a better deal. Compare any retention offer with alternative loans, including its rate, fees, term and features rather than relying on the headline rate.

3. Compare alternative loans. Consider the interest rate, comparison rate, repayments, application and ongoing fees, term and features together.

4. Check switching costs. Potential costs include a fixed-rate break fee, discharge or termination fee, new application fee, internal switching fee and possibly stamp duty. Ask the relevant lender which costs apply.

5. Check equity and LMI. If you have less than 20% equity, you may face lender's mortgage insurance when switching. Ask the current lender whether a refund of some LMI from the existing loan may be available, but do not assume that one is available.

6. Prepare for the lender's assessment. For consumer or residential-investment credit, the lender or broker must make reasonable enquiries about your financial situation and take reasonable steps to verify relevant information. This can involve income, material expenses, other debts and living expenses.

7. Compare the outcome. Set expected savings against exit, break, application and other switching costs. Compare total interest and fees over a similar remaining term and confirm that important features will remain available.

8. Apply only after considering affordability. The assessment focuses on your individual circumstances and whether the credit can reasonably be afforded. The described responsible-lending obligations apply to home loans and loans for investing in residential property; loans predominantly for other investment or business purposes are treated differently even when secured over residential property.

Problems that come up

A fixed-rate loan may have a break fee when you switch. Obtain the applicable figure from the lender before relying on projected savings.

Low equity can make switching more expensive. LMI may apply when you have less than 20% equity, and the additional cost may outweigh the benefit of a lower rate. Ask about any possible refund from the current loan without assuming that a refund is available or sufficient.

A longer term can increase total interest. Compare the remaining term on your current loan with the proposed term and consider whether the new loan would take longer to repay.

Debt consolidation requires care. Turning unsecured debts into debt secured by your home can put the home at risk if the new loan cannot be repaid, because the lender may sell the secured asset to recover the money.

Loan features may differ after refinancing. Check the fees, interest rate and access rules for any offset account or redraw facility before treating it as equivalent to the current feature.

If repayments are difficult, contact your mortgage provider promptly and ask for its hardship team. The lender may be able to change the loan term or reduce or pause repayments temporarily, depending on your circumstances.

When to compare your options

Compare your current lender's retention offer with alternative loans after including the comparison rate, fees, total interest, term and features you use. A refinance is less compelling when exit costs, a break fee, new LMI or lost features consume the expected saving.

A lender or broker may be involved in a refinance application. You can review available alternatives through compare home loan options and find mortgage brokers. Whichever route you take, compare the complete cost and consider the lender's assessment of your financial situation.

Before choosing, place the current loan's balance, remaining term, repayments, fees and features beside the proposed loan's equivalent details. Choose the option that still makes sense after costs and term are included, rather than the one with the lowest advertised rate alone.

FAQs

The answers below summarise the main cost, comparison and responsible-lending considerations. Check lender-specific costs, features and assessment requirements before applying.

Frequently asked questions

What documents do I need to refinance my home loan in Australia?

The lender or broker must make reasonable enquiries about your financial situation and take reasonable steps to verify relevant information. Be ready to provide the information and verification requested about your income, material expenses, other debts and living expenses.

What are the costs involved in refinancing a home loan?

Potential costs include a fixed-rate break fee, discharge or termination fee, new application fee, internal switching fee and possibly stamp duty. Check which costs apply with the lender and compare them with the expected saving.

How much equity do I need to refinance?

Having less than 20% equity may mean you face LMI when switching. This can increase the cost and outweigh the benefit of a lower rate, so check the position with the lender and ask the current lender about any possible LMI refund.

Should I use a mortgage broker for a refinance application?

A lender or mortgage broker may be involved in a refinance application. Whichever option you consider, compare the rate, comparison rate, repayments, fees, term and features. The application remains subject to enquiries and verification of your financial situation.

Is refinancing the same as changing lenders?

No. Refinancing means replacing or extending an existing loan with a new loan, and it can happen with the same lender or a different lender. A same-lender refinance may involve an internal switching fee, while changing lenders can involve discharge and new application costs.

Important information

Editor's note: Confirm tax, credit, and financial details with a suitably qualified Australian professional. This article provides general information only and is not financial, tax or credit advice. Consider obtaining advice from a suitably qualified Australian professional.