Your home loan could be costing you thousands more than necessary, even if you have never missed a repayment. Lenders compete aggressively for new customers, yet existing borrowers can miss out on better deals simply by staying put.
Learning how to refinance your home loan can help you secure a more competitive interest rate, reduce fees, access usable equity or improve your loan features. This step-by-step guide explains how refinancing works in Australia, what lenders assess, how to calculate genuine savings and which hidden costs deserve your attention.
Key Takeaways
| Key Consideration | What You Need To Know |
| Interest rates | A lower rate can reduce interest costs, but fees and loan terms determine your actual savings. |
| Refinancing costs | Allow for discharge fees, application charges, valuation costs and possible fixed-rate break costs. |
| Eligibility | Your income, expenses, credit history, property value and outstanding debts influence approval. |
| Home equity | Increased equity may improve your refinancing options and reduce your loan-to-value ratio. |
| Loan features | Compare your offset account, redraw facility and repayment flexibility before switching. |
| Loan term | Extending your repayment period can reduce monthly payments while increasing total interest. |
| Lenders Mortgage Insurance | Borrowing above 80% of the property’s accepted value may trigger Lenders Mortgage Insurance (LMI). |
| Break-even point | Calculate how long your interest savings take to recover the switching costs. |
What Is Home Loan Refinancing?
Refinancing means replacing your existing mortgage with a new loan, usually from another lender. You can also refinance internally by switching to a different product with your current lender.
When you refinance externally, your new lender pays out your existing loan. Your previous lender then releases its mortgage over your property, and the new lender registers its security interest.
The process does not automatically change who owns your home. Instead, it changes the financing arrangements attached to your property.
You might refinance to achieve several objectives:
- Reduce interest costs: A lower rate can reduce the interest charged on your outstanding balance, leaving more money available for principal repayments.
- Lower your repayments: A different rate or repayment structure can improve monthly cash flow, although extending the term may increase lifetime interest.
- Access home equity: You may be able to borrow against the difference between your property’s value and outstanding mortgage balance.
- Improve loan features: Switching products could provide a more suitable offset account, flexible repayments or a useful redraw facility.
- Consolidate eligible debts: You might combine certain debts with your mortgage, although this can increase the total cost of borrowing.
- Change your interest rate structure: You can consider switching between variable, fixed or split-rate arrangements, subject to eligibility.
However, refinancing is not automatically beneficial. You need to compare the complete financial outcome, not simply the advertised interest rate.
Step 1: Identify Why You Want To Refinance
Before comparing lenders, decide what you want your new mortgage to achieve. Your priorities will determine which products deserve closer attention.
For example, someone approaching retirement might prioritise lower debt and repayment certainty. Meanwhile, a growing family might value flexible repayments and access to an offset account.
Consider these common refinancing goals.
Reduce Your Interest Rate
Your current rate might no longer be competitive with similar products. Lenders regularly adjust their pricing, and existing customers do not always receive the same offers as new borrowers.
The RBA cash rate influences funding conditions and variable mortgage pricing, but lenders do not necessarily pass every change through equally.
Therefore, compare your current rate against comparable products rather than relying on general market announcements.
Improve Your Cash Flow
Lower repayments may free up money for household expenses, savings or other financial priorities.
Nevertheless, check whether the reduction comes from a lower rate or a longer repayment period. Those outcomes can produce very different long-term costs.
Access Equity For Another Purpose
Rising property values and principal repayments can increase your home equity. You may want to use some of that equity for renovations or an investment property.
However, accessing equity increases your debt. Your lender must assess affordability, and the additional borrowing may not suit your financial circumstances.
Step 2: Review Your Existing Mortgage
Before requesting new offers, understand exactly what your current loan costs and provides.
Collect your latest mortgage statement, loan contract and current fee schedule. Then review these details.
- Outstanding balance: Record how much you still owe, because this determines the approximate amount required to refinance.
- Current interest rate: Check your actual rate rather than relying on an old approval letter or promotional offer.
- Remaining loan term: Identify how many years remain, since resetting the term can increase total interest.
- Repayment amount: Record your current repayment and frequency so you can compare equivalent arrangements.
- Loan features: Check whether your existing product includes an offset account, redraw access or other useful facilities.
- Exit costs: Ask your lender about discharge fees, fixed-rate break costs and any other charges applicable to your contract.
Also check whether you have linked savings accounts or available redraw funds. Your new loan may not reproduce every existing feature.
If you have a fixed-rate mortgage, examine its expiry date. Refinancing before the fixed period ends can trigger substantial break costs.
Step 3: Check Your Property Value And Equity
Your property’s value can influence the loan amount available and the interest rate you qualify for.
Lenders commonly assess the loan-to-value ratio (LVR) when considering a refinancing application. LVR measures your mortgage balance against the property’s accepted value.
The formula is:
LVR = Outstanding Loan Balance ÷ Property Value × 100
For example, suppose your property is worth $900,000 and your outstanding mortgage is $600,000.
Your LVR would be:
$600,000 ÷ $900,000 × 100 = 66.7%
This relatively low LVR may provide access to a wider range of products than a higher ratio, depending on the lender’s policies.
Read more: LVR Calculator for refinance
How Much Equity Can You Access?
Your total equity is the difference between your property’s value and the outstanding mortgage.
In this example:
- Property value: $900,000.
- Outstanding mortgage: $600,000.
- Total equity: $300,000.
However, total equity is not the same as accessible equity. Lenders usually limit borrowing according to their LVR limits and your ability to repay.
For illustration, borrowing up to 80% of the property’s accepted value would produce a maximum total loan of $720,000.
After deducting the existing $600,000 balance, the theoretical additional borrowing would be $120,000.
That figure is not a guaranteed approval or a recommendation to borrow the full amount. Your income, expenses, credit commitments and lender policies still matter.
A valuation below your expectations could also reduce your borrowing options. Therefore, avoid committing to a new loan amount before the lender assesses your property.
Read more: Home equity calculator Australia
Step 4: Compare Refinancing Offers Properly
Once you understand your existing loan, compare suitable alternatives from banks and other lenders.
Do not choose a product solely because its advertised rate looks attractive. Compare the full cost and the features you genuinely need.
The Australian Government’s Moneysmart guide to choosing a home loan explains how to compare products using standardised loan information.
| Comparison Factor | What To Examine |
| Interest rate | Compare the actual rate applicable to your balance and borrower profile. |
| Comparison rate | Review the rate combining the interest rate and most standard fees, subject to its assumptions and exclusions. |
| Upfront fees | Check application, establishment, valuation and settlement charges. |
| Ongoing fees | Include annual package fees and monthly account charges. |
| Offset account | Confirm whether the account reduces interest and whether it attracts extra fees. |
| Redraw facility | Check access conditions, minimum withdrawal amounts and any applicable restrictions. |
| Repayment flexibility | Compare extra repayment rules, repayment frequency and applicable limits. |
| Loan term | Match the remaining term where practical to make cost comparisons meaningful. |
Why The Comparison Rate Matters
The comparison rate combines the interest rate with most standard fees and charges into a single annual percentage.
It helps you identify products where a low advertised rate comes with higher fees. However, the comparison rate uses prescribed assumptions and may not reflect every cost you personally incur.
For that reason, review the lender’s formal loan information and calculate your own expected costs.
Fixed Versus Variable Interest Rates
A variable rate can change over time, affecting your repayments or the speed at which you repay principal.
A fixed rate provides greater certainty during its fixed period, but restrictions may apply to extra repayments and refinancing.
A split loan combines fixed and variable portions, potentially balancing certainty with flexibility. However, it also creates additional conditions to compare.
Choose the structure that suits your financial priorities and tolerance for repayment changes.
Read more: Advantages and disadvantages of comparison rate
Step 5: Calculate Whether Refinancing Will Save You Money
This is where a promising refinancing offer must prove its value.
Your real savings depend on the difference between your current loan costs and the new loan costs, including switching expenses.
Consider this example using an outstanding mortgage of $600,000.
Assume your current interest rate is 6.50%, while a potential new loan offers 5.90%.
Note: Both rates are illustrative, not current market quotes.
| Item | Existing Loan | New Loan |
| Outstanding balance | $600,000 | $600,000 |
| Illustrative interest rate | 6.50% | 5.90% |
| Approximate first-year interest | $39,000 | $35,400 |
| Difference in annual interest | — | $3,600 |
The initial difference is approximately $3,600 in annual interest before fees and repayment effects.
However, actual interest depends on your daily balance, repayment timing and how quickly you reduce the principal. The figures above provide a simple comparison, not a repayment forecast.
Calculate Your Break-Even Point
Suppose refinancing involves these illustrative costs:
| Refinancing Expense | Example Cost |
| Discharge fee | $350 |
| Application and settlement fees | $500 |
| Valuation and administrative costs | $150 |
| Total switching costs | $1,000 |
If the new loan generates approximately $300 in monthly interest savings initially, the simple break-even calculation is:
Break-even period = Total Switching Costs ÷ Monthly Savings
$1,000 ÷ $300 = approximately 3.3 months.
This is a simplified estimate. Your savings will change as the mortgage balance falls, and fees or rate changes may alter the outcome.
Nevertheless, the calculation helps you determine whether switching costs are reasonable relative to the potential benefit.
When Refinancing May Not Be Worthwhile
Refinancing might offer little financial benefit if your current loan already has competitive pricing, your balance is small or exit costs are substantial.
It may also be unsuitable if you plan to sell the property soon. In that case, you might not retain the new loan long enough to recover switching costs.
Step 6: Understand The Loyalty Tax And Negotiate
One of the most overlooked refinancing opportunities involves the difference between pricing offered to new customers and pricing available to existing borrowers.
Lenders may offer attractive introductory rates or cash incentives to attract new business. Meanwhile, an existing customer might remain on a less competitive rate without realising it.
This difference is often described as a loyalty tax. It is a useful term for the potential cost of remaining with a lender without reviewing your options.
However, it does not mean every existing borrower automatically pays more. Pricing depends on the lender, product, balance, LVR and customer circumstances.
Ask Your Current Lender For A Better Deal
Before completing an external refinance, ask your lender to review your pricing.
Explain that you are comparing alternatives and want to understand what it can offer on your existing mortgage.
Request confirmation of:
- Your revised interest rate, because a verbal indication does not guarantee the final product terms.
- Any package or annual fees, since a lower rate may come with additional ongoing costs.
- Whether your existing loan features will remain available, because switching internally can affect account conditions.
- Any internal switching fees, which could reduce the benefit of accepting the offer.
Compare the revised proposal against external offers on equivalent terms.
Your current lender might offer a competitive retention rate without requiring a complete refinancing process. Alternatively, another lender may provide a better overall arrangement.
The important point is to compare the actual financial outcomes rather than remaining loyal by default.
Step 7: Check Your Credit And Borrowing Power
Even when you have made every mortgage repayment on time, your new application requires a fresh assessment.
Lenders generally examine your income, employment, living expenses, existing debts and credit history. They also assess the property and proposed loan structure.
Your borrowing power may have changed since you originally purchased your property.
For example, a new car loan, additional dependants or reduced household income could affect your application. Higher living expenses may also reduce the amount a lender considers affordable.
Understand The Serviceability Assessment
APRA’s prudential framework requires authorised deposit-taking institutions to apply a minimum serviceability buffer of three percentage points above the relevant loan interest rate, unless APRA determines otherwise.
This means a bank generally tests whether you can afford repayments at a higher assessment rate, not just your proposed new interest rate.
Consequently, you might struggle to qualify for a new loan even when you comfortably manage your existing repayments.
Before applying, review your credit report and correct any inaccurate information. Avoid taking on unnecessary new debts while preparing your application.
If you cannot qualify elsewhere, discuss available options with your current lender. Do not assume an external refinance is your only route to better loan terms.
Step 8: Prepare Your Documents And Apply
Once you have identified a suitable product, gather the information needed for assessment.
The exact requirements vary between lenders and depend on your employment, income sources, property and loan purpose.
Common documents include:
- Identification: Your lender needs acceptable identification to verify your identity and meet its legal obligations.
- Income evidence: Employees may need recent payslips, while self-employed applicants may need tax returns and financial statements.
- Existing loan statements: These establish your outstanding balance, repayment history and current loan details.
- Bank statements: Your lender may request statements to verify savings, expenses and existing financial commitments.
- Property information: A valuation, council rates notice or other property records may be required.
- Debt details: Credit card limits, personal loans and other commitments help the lender assess affordability.
Submit accurate information and respond promptly to requests. Missing documents can delay assessment or settlement.
You should also review the proposed loan amount carefully if you intend to access equity. Borrowing more than necessary can increase your interest costs and repayment obligations.
What Happens After You Apply?
The lender assesses your application, verifies your finances and arranges a property valuation where required.
If approved, you receive loan documents outlining the terms and conditions. Read them carefully before signing.
Approval does not mean you should stop checking the costs. Confirm the interest rate, fees, repayment schedule and loan features before proceeding.
Step 9: Account For Discharge Fees And Other Hidden Costs
Refinancing involves more than comparing two interest rates. Several expenses can reduce or eliminate your expected savings.
Your existing lender may charge a discharge fee to close the mortgage. Your new lender may charge application, settlement or valuation fees, depending on the product.
You should also check whether government registration charges apply. The applicable mortgage registration process and fees can vary by jurisdiction and transaction.
What About Fixed-Rate Break Costs?
Fixed-rate break costs can be considerably larger than ordinary discharge fees.
They may apply when you repay a fixed-rate mortgage before the agreed period ends. The amount depends on the contract, remaining fixed period and relevant funding conditions.
Ask your lender for a written estimate before deciding whether to switch. Do not assume that a low advertised rate will offset a substantial break cost.
Could Lenders Mortgage Insurance Apply Again?
Lenders Mortgage Insurance (LMI) generally protects the lender when a borrower defaults on a qualifying high-LVR loan. It does not protect you against financial loss.
If your new loan exceeds the lender’s relevant LVR threshold, you may need to pay LMI. An existing LMI premium generally does not transfer automatically to a different lender.
However, eligibility for waivers or other arrangements depends on the lender and your circumstances. Check the requirements before proceeding.
Is Stamp Duty Payable?
Refinancing an existing mortgage without transferring property ownership does not ordinarily trigger property transfer duty merely because you change lenders.
However, registration fees and other charges may apply. If your transaction also involves a property transfer, ownership restructuring or additional borrowing arrangements, seek advice about the relevant rules.
For current costs, consult your lender and the appropriate state or territory revenue authority.
Step 10: Complete Settlement And Check Your New Loan
Once you accept the loan documents, your new lender coordinates the remaining steps.
You may need to complete a discharge authority for your existing lender. This authorises the release of its mortgage once the outstanding debt is paid.
Your new lender then arranges settlement and pays out the existing mortgage. The previous mortgage is discharged, and the new lender’s security is registered.
After settlement, take these steps:
- Verify the payout: Confirm your old mortgage has been paid out and closed, so you can identify any remaining balance or adjustment.
- Check your new repayments: Confirm the repayment amount, frequency and first due date against your loan documents.
- Review your offset account: If your new product includes an offset account, confirm it is linked correctly and understand its conditions.
- Check redraw access: If your loan includes a redraw facility, review the available balance and withdrawal rules.
- Update automatic payments: Ensure your salary deposits and scheduled transfers work with your new banking arrangements.
Keep your settlement documents and final statements for future reference. They can help resolve discrepancies and establish the history of your loan.
Common Refinancing Mistakes To Avoid
A successful refinance depends on choosing suitable terms, understanding the costs and completing the process carefully.
Watch out for these common mistakes:
- Choosing the lowest advertised rate: The cheapest headline rate may come with fees or restrictions that make another product better value.
- Ignoring the remaining loan term: Extending your mortgage can reduce repayments but increase the total interest you pay.
- Overlooking fixed-rate break costs: An early exit charge can outweigh the savings from switching to a lower rate.
- Assuming approval is guaranteed: A lender can decline your application after reviewing your income, expenses, credit profile and property valuation.
- Borrowing more than necessary: Accessing extra equity increases your debt and may weaken your future financial flexibility.
- Cancelling useful loan features: Losing a suitable offset account or flexible redraw arrangements may reduce the practical value of your new loan.
If Buying a house was your original goal, refinancing can help you manage the mortgage after purchase. However, every new arrangement should support your current circumstances rather than simply appear attractive on paper.
A home buyer who later refinances should assess the loan as carefully as the original purchase. Your income, household needs and financial objectives can change over time.
Conclusion: Make Refinancing Work For Your Finances
Refinancing can help you reduce interest costs, improve loan features, access equity or create a more manageable repayment structure. However, the best outcome depends on the complete cost of the new mortgage.
Start by reviewing your existing loan, checking your property value and comparing suitable alternatives. Then calculate the break-even point, account for discharge fees and confirm that you meet the lender’s eligibility requirements.
Remember that a lower repayment does not always mean a cheaper loan. Consider the interest rate, fees, loan term and flexibility together.
Whether you purchased your property recently or have held your mortgage for years, regular reviews can help you identify opportunities and avoid paying more than necessary. The right refinance is not simply a switch to a different lender. It is a financial decision that improves your position without creating unnecessary long-term costs.
Frequently Asked Questions
1. How To Refinance Your Home Loan In Australia?
Start by reviewing your existing mortgage, checking your property value and comparing suitable loan products. Calculate switching costs, prepare your financial documents and submit an application. Once approved, your new lender coordinates settlement and pays out your existing mortgage.
2. How Much Does It Cost To Refinance A Home Loan?
Costs vary by lender and loan structure. They may include discharge fees, application charges, valuation fees, registration fees and fixed-rate break costs. Calculate the total before switching to determine whether the expected savings justify the expense.
3. How Long Does Home Loan Refinancing Take?
The process can take several weeks, although some applications finish sooner. Timing depends on document preparation, lender assessment, property valuation and settlement arrangements. Complex applications or missing information can cause delays.
4. Can I Refinance My Home Loan With The Same Bank?
Yes. Internal refinancing allows you to switch to another product offered by your current lender. This may provide a better rate or different features without requiring an external lender. Check any internal switching fees and compare the offer with competing products.
5. Can I Refinance If My Property Value Has Increased?
Yes, potentially. A higher accepted valuation may reduce your LVR and increase your available equity. However, your income, expenses, credit history and borrowing capacity still influence approval. The lender determines the valuation it accepts.
6. Can I Refinance With Less Than 20% Equity?
Yes, some lenders may consider applications above 80% LVR. However, eligibility varies, and Lenders Mortgage Insurance may apply. Compare the additional costs carefully before deciding whether refinancing is worthwhile.
7. Will Refinancing Affect My Credit Score?
A refinancing application may involve credit enquiries, which can affect your credit score. The impact depends on your credit profile and the scoring system used. Avoid making numerous unnecessary applications and check your credit report before applying.
8. Is It Better To Refinance Or Negotiate With My Current Lender?
Neither option is automatically better. Ask your existing lender for a revised offer, then compare it with external products. Consider the interest rate, fees, features and remaining loan term before deciding which arrangement offers better overall value.
