Your existing home loan may no longer reflect your financial position or plans. Refinancing can allow you to review your interest rate, repayments, lender, loan structure and account features.
However, refinancing does not automatically produce a better outcome. Discharge costs, application fees, valuation expenses, lenders mortgage insurance and a longer loan term can reduce or outweigh the potential benefit.
A broker can compare a proposed refinance with your existing loan and help you consider both the immediate and longer-term costs.
Why people refinance
Common reasons include:
Approval remains subject to the new lender's credit assessment and lending requirements.
- Seeking a more competitive interest rate
- Reducing regular repayments
- Accessing an offset account or other loan features
- Changing from a fixed to a variable structure
- Consolidating eligible debts
- Accessing available property equity
- Funding renovations or another property purchase
- Separating or restructuring lending
- Moving from a lender that no longer meets the borrower's needs
Is a lower rate enough?
A lower advertised rate does not necessarily mean that refinancing will be beneficial. The comparison should include:
Before switching, it may also be worthwhile asking your existing lender whether it can offer a more competitive rate or product.
- The interest rate and comparison rate
- Annual and monthly fees
- Discharge and settlement costs
- Application or valuation fees
- Lenders mortgage insurance, where applicable
- Cashback conditions, if offered
- The remaining and proposed loan terms
- The value of any offset or redraw features
- The projected interest cost over the relevant period
Be cautious about extending the loan term
Reducing repayments by restarting a loan over a new 30-year term may improve monthly cash flow but increase the total interest paid over time.
Where affordable and appropriate, borrowers may consider retaining a shorter remaining term or making additional repayments. The right approach depends on the borrower's financial position, objectives and the terms of the new loan.
Debt consolidation through refinancing
Some borrowers refinance to consolidate credit cards, personal loans or other debts into their mortgage.
This may reduce the immediate interest rate or required monthly repayments. However, converting short-term debt into debt secured against a home can increase the repayment period and total interest cost. The home may also become security for debts that were previously unsecured.
Debt consolidation should be assessed as a broader financial decision, not simply as a way of obtaining a lower monthly repayment.
What happens during a refinance?
The usual process involves:
- Reviewing the existing loan and current payout position.
- Confirming the borrower's objectives and preferred features.
- Comparing suitable lender options.
- Calculating the costs and potential benefits.
- Lodging a new loan application.
- Completing valuation and lender assessment requirements.
- Arranging discharge of the existing loan.
- Settling the new loan.
Find out whether refinancing makes sense
A refinance review can help determine whether an existing loan remains competitive and appropriately structured. A review does not obligate the borrower to change lenders.
Request a home loan review
Speak with an experienced broker about your circumstances, available options and the next steps.
FAQs
How often should I review my mortgage?
A review may be worthwhile when rates change, a fixed period is ending, your circumstances change or the loan has not been reviewed for several years.
Will refinancing affect my credit report?
A formal credit application will generally involve a credit enquiry. Multiple applications within a short period can affect how lenders assess a borrower's credit profile.
Can I refinance with less than 20% equity?
Potentially, but lender choices may be more limited and lenders mortgage insurance or other conditions may apply.
Is cashback a good reason to refinance?
Cashback should be considered alongside the rate, fees, loan term and total cost. It should not be assessed in isolation.