Reviewing or refinancing.

Why refinance your home?

The main reason people refinance with a new lender is to get a better deal than their current lender is prepared to offer. There are many things that might make one lender’s offer better than another’s for your situation. Even if you’re just thinking of restructuring a loan with your current lender, it’s often a good time to at least check what their competitors would offer.

Better interest rates

These are constantly changing. If you’ve been keeping an eye on rates, you may have noticed another lender seems to consistently offer lower rates than your current one does. Even a slightly lower rate can make a big difference to what you pay over the life of the loan and how soon you can be mortgage free. Our handy rates table makes it easy to compare the latest interest rates.

A more suitable loan product

While most lenders offer similar loan options, there are differences between them. You may find another lender can offer a type of loan that better suits your needs in the way it works or the opportunities it provides. For example, if you have a variable income, another lender might make it easier to increase your loan repayments online and bring them back to the agreed minimum again whenever it suits. Or you might have realised an offsetting loan would save you money, but your current lender doesn’t offer them. To learn more, see our guide about types of loans.

More favourable lending conditions

Each lender has their own rules on how much they’ll lend, when things like a low deposit (low equity) interest rate margin will be charged or whether mortgage insurance is compulsory. If another lender offers better conditions, it could be worth switching. For more, see our guide about low deposit home loans.

A much-needed new customer incentive

Lenders sometimes offer bonuses to attract new customers. These range from substantial cashback payments and new appliances to paying for a house valuation or your legal expenses. Just keep in mind that some have to be paid back if you take your loan elsewhere within a certain time. If you received an incentive when you first signed up with your current lender, be sure to check whether it has to be repaid if you switch to someone else. You’ll find more detail in our article about home loan cashbacks.

Better customer service

If your current lender has let you down a few times, you might want to jump ship to a new lender. This can seem particularly attractive if you have friends or family who rave about their lender, whenever you complain about yours. Just be sure to fully research the immediate costs and ongoing differences in interest rates and fees.

When to refinance

You can refinance your home whenever it suits, but there are times when the costs involved will be less and the benefits may be greater. A loan review, with refinancing included as a potential option, is something you should do on a regular basis. Interest rates, lenders’ offers and your own situation will inevitably change with time. It’s important to ensure you still have the best possible loan arrangement. Here are some common examples of when it might be good to refinance your home.

Your fixed interest rate term is coming to an end

If you repay a loan while it’s still on a fixed interest rate, you’ll probably have to pay an early repayment charge (see below). So waiting until the fixed rate is about to end, and planning ahead for when it does, can make good sense. Your lender will probably let you know it’s coming to an end and suggest you lock in a new fixed interest rate in advance, often with some urgency. They’ll also explain that if you do nothing it will roll onto the floating rate. While your current lender may still be offering the best loan for your situation, now’s a good time to check. Even if it rolls onto a higher floating rate for a brief period, you can always refix it as soon as you’re sure. For tips on what to do when a fixed rate term is coming to an end see our guide to managing your home loan.

You’re struggling to meet your home loan repayments

If you think you won’t have the money for an upcoming home loan repayment it’s important to contact your lender as soon as possible. Several options may be available, such as a short repayment holiday or restructuring to an interest-only home loan for a while. Another option may be to reduce your regular repayments by spreading them out over a longer term of up to 30 years. Just bear in mind this will increase the total interest you pay over the life of the loan. If your current lender can’t offer an option that meets your immediate or ongoing needs, you can always consider refinancing with another lender.

A major change in life is coming up

Life events can impact the type of home loan you need. You might need more flexibility or you might want to remove the temptation flexibility provides. Either way, restructuring your loan with your existing lender can help. At the same time you can check out what other lenders would offer if you refinance with them. If you’re in a personal relationship that’s coming to an end, see our article about refinancing your home after a breakup or divorce.

You need to cash up some of the equity in your property

Urgent repairs, an addition for your growing family, a more reliable car or an overseas trip to see family. These are events that suggest it’s better to borrow the money needed rather than wait. If you’ve repaid some of your home loan or your property has increased in value, you may be able to increase your loan to provide the cash you require. You’ll need to meet the repayment affordability criteria of course. It’s also a good time to review the structure of your loan and keep refinancing with another lender in mind.

Your income has increased or you’ve received a substantial sum

Whenever your finances change significantly, it’s important to get independent professional advice before deciding what to do. For most people, repaying their home loan faster will create significant long-term benefits. But it also pays to plan ahead and allow for upcoming life events and goals. This can involve restructuring your loan or switching to a lender who’s offering a better deal. For more, see our guide to repaying your home loan faster.

Refinancing costs.

There are usually costs involved in refinancing with another lender and it’s important to take these into account. A new lender might offer to help cover some of the costs, so be sure to ask and negotiate. In the meantime, here are some of the most common refinancing expenses.

Break fees

Also known as early repayment charges, these occur if you repay a fixed interest rate loan before the fixed rate contract ends. The lender apply these charges to recover their costs and lost income. If interest rates have increased they’ll be able to re-lend your amount owing without loss, so the fee will cover admin costs only. But if rates are now lower, the fixed rate term has a while to go and there’s still a lot owing, the break fee can be substantial. For more see our article on breaking a fixed home loan.

Legal fees

When you refinance with another lender, it’s like getting a completely new loan. Typically, you need to pay a lawyer to process the documentation and ensure mortgages over the property are released from your current lender to your new one. Some lawyers specialise in providing this service at more affordable rates, so shop around.

Valuation fees

Your new lender may ask you to provide a current registered valuation of your property. These usually cost at least $500.

Repaying rewards or incentives

If you received a cashback incentive or other rewards when you got your current home loan, you’ll probably have to pay it back if you’re switching within a certain time. It’s usually two or three years, but each agreement is different.

Documentation fees

A new lender may charge a set up or establishment fee of about $150 for a straightforward home ownership arrangement. You can often negotiate to have this fee waived. In addition, your current lender will probably charge fees related to repaying and discharging the loan. These are typically around $40 for a standard set up.

Consulting an adviser.

If you’re thinking about refinancing, a mortgage adviser (broker) can help you find the best deal for your situation. They’re paid by the lender you choose to switch to, so there’s usually no extra cost to you, but be sure to ask upfront. They’ll start by getting to know your situation and goals before recommending the best options and explaining each one to you. Here are some of the ways a mortgage adviser might help.

Market knowledge

A good adviser works closely with multiple lenders. This means they should have detailed knowledge of the latest offers and each lender’s rules and criteria. Sometimes they can access interest rates that are better than those publicly advertised.

Product knowledge

Advisers work with home loans every day, so they can help you work out the cost benefits of switching for each option that might suit your needs. This not only saves you time, it gives you peace of mind knowing you haven’t missed an important detail.

Application support

Once you’ve chosen a new home loan provider, a good adviser will help you prepare all the application documents. This ensures you’re represented in the best possible way and the application is processed without delay. Refinancing is like getting a completely new loan, so there can be a lot involved around providing evidence of affordability and so on.

Ensuring the refinancing process happens smoothly

Even after your new loan is approved, a good mortgage adviser will stay with you every step of the way. As you progress to drawing down your new loan, they’ll make sure everything happens as it should and help put things right if there’s a problem.

To learn more, see our article why work with a mortgage adviser for refinancing.

How to refinance, step-by-step.

Here’s a step-by-step summary of a typical process for refinancing your home, with or without the help of a mortgage adviser.

1. Be clear about why you want to refinance

It’s important to carefully consider what you’re trying to achieve. This might include your immediate needs and longer term goals. Writing these down and referring back to them when making decisions can help you stay on track. When you consider the facts, simply restructuring things with your current lender might turn out to be the best option.

2. Research your actual costs to refinance

Everyone’s situation is different, so ask your current lender for a list of the costs to break and discharge your loan, including any clawback on customer incentives. Talk to a lawyer about conveyancing charges and find out what a typical valuation costs in your area.

3. Research other lenders’ offers

You may already have a good idea of published interest rates, but there’s more to explore than that. Lenders with the lowest interest rates might have challenging acceptance criteria, a limited range of loan types or no incentives (like a cashback). The quick way to do this is to work with a mortgage adviser.

4. Talk to your current lender

It’s usually a good idea to let your current lender know you’re considering switching and why. You might be surprised by what they’ll offer to keep your business. If you’re using an adviser, it can be helpful if your current lender is one they usually work with.

5. Apply for your new home loan

If you’ve decided that refinancing will best suit your needs, it’s time to apply to your new lender. Once they’ve given you some indication that you might be approved, you can get a formal application together. This can involve considerable paperwork and financial evidence, like bank statements, records of savings and other loans, proof of income and a property valuation.

6. Home Loan approval and drawdown

If your application is approved, the new lender will send you a letter of approval that includes all the details of the loan. If you accept this, they’ll set you up as a new customer, which requires proof of ID and so on. They’ll send the full loan documentation to your lawyer for you to work through together, sign and return. On the agreed drawdown date your lawyer will make sure your previous mortgage is repaid and discharged, and the new mortgage is registered on your property’s title.