Reduce interest costs
A more competitive interest rate may reduce repayments or the total interest payable, particularly where the remaining loan term is kept under control.
Refinancing
Refinancing Your Home Loan
Refinancing can reduce interest costs, improve loan structure or create greater flexibility — but a lower interest rate does not automatically mean a better financial outcome. The important comparison is the total cost of your existing loan versus the proposed new loan.
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What is refinancing?
Refinancing means replacing your existing home loan with a new loan, either with your current lender or with another lender.
People refinance for many reasons. These can include obtaining a more competitive interest rate, changing the loan structure, consolidating debt, accessing available property equity or moving to a lender whose policies or features better suit their circumstances.
The interest rate is important, but it is only one part of the decision. Loan term, fees, features, remaining debt and the total interest payable from today can all affect whether refinancing actually leaves you better off.
Why do people refinance?
The reason for refinancing should be clear before comparing lenders. A lower rate may be useful, but the best outcome depends on what you are trying to achieve.
Improve the loan structure
Refinancing may allow you to change repayment type, loan splits, offset arrangements or other features.
Consolidate debt
Higher-interest debts may sometimes be consolidated into the home loan, but the repayment term and total cost need to be considered carefully.
Access property equity
Available equity may be accessed for purposes such as renovations, investment, business needs or other approved lending purposes.
Change lenders
A different lender may offer more suitable policy, pricing, features or service.
Restructure existing debt
Refinancing can sometimes help simplify or reorganise existing lending where the current structure no longer suits the borrower.
When might refinancing make sense?
Refinancing may be worthwhile where the benefits are expected to outweigh the costs and the new loan remains appropriate for your longer-term plans.
Your current rate is no longer competitive
A meaningful rate difference may create worthwhile savings, particularly where there is still a substantial balance and loan term remaining.
Your current loan lacks useful features
Features such as an offset account, redraw or flexible loan splits may be valuable depending on how you manage your finances.
Your circumstances have changed
Income, property ownership, family circumstances or financial objectives may have changed since the existing loan was established.
You need a different lending policy
Another lender may be more suitable for self-employed income, investment lending, equity access or another specific circumstance.
You want to restructure debt
A refinance may help reorganise existing debts, provided the overall cost and repayment strategy make sense.
The savings exceed the switching costs
Refinancing is more compelling where the expected financial benefit comfortably exceeds discharge, application, valuation and other switching costs.
When might it pay not to refinance?
Refinancing is not automatically beneficial simply because another lender offers a lower interest rate.
This becomes particularly important when you are already well advanced into an existing mortgage. For example, if you have completed 20 years of a 30-year home loan, you may only have 10 years remaining.
Refinancing the remaining balance into a new 25- or 30-year loan may significantly reduce the monthly repayment, but it may also extend the debt for many additional years and increase the total amount of interest paid from today.
The correct comparison is therefore not simply the old interest rate versus the new interest rate. It is the total remaining cost of the existing loan compared with the total cost of the proposed new loan.
When refinancing may not be worthwhile
There are situations where remaining with the existing loan may produce the better outcome, even when another lender advertises a lower rate.
You are close to repaying the loan
Where only a relatively short loan term remains, refinancing into a longer term can increase the total interest cost.
The rate difference is very small
A small interest-rate saving may not recover the cost and effort of refinancing within a reasonable period.
Switching costs are high
Discharge, application, valuation, legal or government charges can reduce or eliminate the expected savings.
You have a large fixed-rate break cost
Breaking a fixed-rate loan can involve substantial costs that need to be included in the comparison.
You plan to sell soon
If the property is likely to be sold in the near future, there may not be enough time to recover the refinancing costs.
The new loan extends the debt unnecessarily
Lower repayments achieved primarily by extending the loan term may increase the total amount of interest paid.
What costs should be considered?
The true cost of refinancing includes more than the advertised interest rate.
Discharge fees
The existing lender may charge fees when the current mortgage is discharged.
Application or establishment fees
The new lender may charge application, settlement or establishment costs.
Valuation costs
A property valuation may be required, although some lenders absorb this cost.
Government and registration charges
Mortgage registration or other government charges may apply depending on the transaction and jurisdiction.
Fixed-rate break costs
Borrowers leaving a fixed-rate loan early may incur break costs, which can sometimes be significant.
Ongoing fees
Annual package fees, account fees or other ongoing charges should be included when comparing loans.
The break-even point matters
A useful way to assess refinancing is to calculate how long it will take for the expected savings to recover the cost of switching lenders.
For example, if refinancing costs $2,000 and the new loan is expected to save $200 per month, the simple break-even period is approximately 10 months.
If you expect to keep the loan well beyond that point, the refinance may be worthwhile. If you expect to sell or refinance again before then, the benefit may be much smaller.
Refinancing and debt consolidation
Debt consolidation can reduce the interest rate or simplify repayments, but the loan term needs particular attention.
Lower interest rate
Credit cards and personal loans may carry much higher rates than a home loan.
Lower monthly repayment
Combining debts into the mortgage can reduce the immediate monthly repayment.
Longer repayment period
A debt that might otherwise be repaid over three or five years can become part of a mortgage lasting many more years.
Total interest matters
A lower interest rate does not guarantee a lower total cost if the debt is repaid over a much longer period.
Accessing equity when refinancing
Refinancing may also provide an opportunity to access some of the available equity in a property, subject to lender policy, valuation, serviceability and the proposed use of the funds.
Common purposes can include renovations, investment, business requirements or other approved personal purposes.
Increasing the loan balance should be considered separately from simply obtaining a lower interest rate, because borrowing additional funds changes both the repayment and the total amount of interest that may be paid.
What will a lender assess?
A refinance is a new credit application. The lender will generally reassess the borrower's current financial position rather than simply transferring the existing loan.
Income
Current employment, business or other acceptable income will usually need to be verified.
Living expenses
The lender will assess ongoing household and financial commitments.
Existing debts
Credit cards, personal loans, car finance and other commitments may affect borrowing capacity.
Property value
A current valuation may be required to determine available equity and loan-to-value ratio.
Credit history
The lender may review credit history and existing repayment conduct as part of the assessment.
Loan purpose
Where additional funds are being borrowed, the lender may require information about how those funds will be used.
Why lender selection matters
Different lenders can assess the same refinance very differently. The cheapest advertised rate is not always the most suitable option.
Interest rates and discounts
Available pricing can vary based on loan size, loan-to-value ratio and lender policy.
Serviceability policy
Different lenders can produce different borrowing outcomes from the same income and expenses.
Property policy
Property type, location and valuation can affect which lenders are suitable.
Loan features
Offset accounts, redraw, fixed and variable splits and other features vary between products.
How I compare refinancing options
My role as a mortgage and finance broker is to compare the complete financial outcome rather than simply finding a lower advertised rate.
That means looking at the existing balance, current rate, remaining loan term, proposed new rate, proposed new term, switching costs, loan features and the total interest expected to be paid from today.
In some cases, refinancing can create meaningful savings. In others, the better decision may be to keep the existing loan, negotiate with the current lender or refinance without extending the remaining term.
A typical refinancing journey
The exact process varies between lenders, but a refinance will commonly involve these stages.
- 1
Review the existing loan
Confirm the current balance, interest rate, remaining term, repayments and loan features.
- 2
Clarify the objective
Identify whether the priority is reducing costs, changing the structure, accessing equity, consolidating debt or achieving another outcome.
- 3
Compare the numbers
Compare repayments, total remaining interest, switching costs and the proposed new loan term.
- 4
Compare lenders
Review suitable lenders, pricing, policy and features.
- 5
Application and valuation
Complete the application and arrange any required property valuation and supporting documents.
- 6
Approval
Review the approved terms and confirm that the expected benefits still justify the refinance.
- 7
Settlement
The new lender repays the existing lender and the new loan begins.
Refinancing questions
How do I know if refinancing is worth it?
Compare the total expected cost of your existing loan from today with the total expected cost of the proposed new loan, including interest, loan term and switching costs.
Does a lower interest rate always mean I should refinance?
No. The remaining loan term, refinancing costs, product features and total interest payable can all affect whether the lower-rate loan produces a better outcome.
What happens if I refinance a loan with only 10 years remaining back to 30 years?
The monthly repayment may fall substantially, but extending the debt over another 30 years can increase the total interest paid. Comparing the new loan over the same remaining term can provide a clearer comparison.
How much does refinancing cost?
Costs may include discharge fees, application or settlement costs, valuation fees, government charges and potentially fixed-rate break costs. The amount varies between lenders and loans.
Can I refinance with my existing lender?
You may be able to negotiate a different rate or product with your current lender without completing a full refinance to another bank. It can be worth comparing both options.
Can I access equity when I refinance?
Potentially. The amount available will depend on property value, existing debt, serviceability, lender policy and the purpose of the additional borrowing.
Can I consolidate credit cards or personal loans into my mortgage?
In some circumstances, yes. However, extending short-term debt over a long mortgage term can increase total interest, so the repayment strategy should be considered carefully.
Will I need another property valuation?
Usually the new lender will need to establish the property's current value. The method of valuation can vary depending on the lender and transaction.
How long does refinancing take?
Timeframes vary depending on the lender, valuation, documentation and complexity of the application. Settlement also depends on the existing lender completing the discharge process.
Should I reset the loan back to 30 years when I refinance?
Not automatically. A longer term can reduce repayments, but it may increase the total interest paid. Keeping the new term closer to the remaining term of the existing loan can provide a more meaningful cost comparison.