If you have had the same home loan for a few years, there is a good chance you are paying more than you need to. Many Australian lenders offer their best rates to new customers, while existing borrowers quietly drift onto higher rates. Refinancing, which means switching your home loan to a new lender or a new product, can lower your repayments and save thousands of dollars over the life of the loan.
This guide explains how refinancing works in Australia, when it makes sense, what it costs, and how to do it step by step.
What Is Refinancing?
Refinancing means replacing your existing home loan with a new one. The new loan pays out the old one, and you then repay the new lender. You can refinance with:
- A different lender (the most common way to get a better rate)
- Your current lender, by switching to a cheaper product or negotiating a lower rate
Why Refinance Your Home Loan?
- Get a lower interest rate. Even a small difference adds up over a 25 to 30 year loan.
- Reduce your monthly repayments.
- Pay off your loan faster by keeping repayments the same while paying less interest.
- Switch from fixed to variable, or the reverse, when your fixed term ends.
- Access equity for renovations, investing or other goals.
- Consolidate debts into one lower-rate loan.
- Get better features, such as an offset account or redraw facility.
- Earn a cashback offer from some lenders.
How Much Can You Really Save?
Here is a simple illustration. Say you have a $500,000 loan with 25 years remaining.
| Interest Rate | Approx. Monthly Repayment | Approx. Annual Cost |
|---|---|---|
| 6.5% | $3,376 | $40,512 |
| 6.0% | $3,222 | $38,664 |
| 5.5% | $3,070 | $36,840 |
Dropping from 6.5% to 5.5% would save roughly $300 a month, or about $3,600 a year, and much more over the full term. These figures are for illustration only, so replace them with current market rates and use a repayment calculator to confirm.
When Is the Right Time to Refinance?
Refinancing may be worth considering if:
- Your current rate is higher than what new customers are being offered
- Your fixed-rate period is about to end
- Your property value has increased and your equity has grown
- Your income or credit situation has improved
- Your loan features no longer suit you
- You have not reviewed your loan in two or more years
Step-by-Step: How to Refinance a Home Loan in Australia
Step 1: Check Your Current Loan
Find out your current interest rate, remaining balance, loan term, and any fees. Look for exit fees, break costs (especially on fixed loans) and features you will lose.
Step 2: Set Your Goal
Decide what you want: lower repayments, a shorter loan term, access to equity, or better features. Your goal shapes which loan suits you.
Step 3: Estimate Your Property Value and Equity
Lenders base their decision on your loan-to-value ratio (LVR). If you have at least 20% equity (an LVR of 80% or lower), you will generally access better rates and avoid Lenders Mortgage Insurance (LMI).
Step 4: Compare Loans
Compare interest rates, but also the comparison rate, which includes most fees and gives a truer picture of cost. Check fees, offset accounts, redraw, extra repayment options and cashback offers.
Step 5: Talk to Your Current Lender
Before leaving, call your lender and ask for a better rate. Many will reduce the rate to keep you, especially if you show them a competitor’s offer.
Step 6: Consider a Mortgage Broker
A broker can compare loans from many lenders and handle much of the paperwork. Most brokers are paid commission by the lender, so ask about their panel and how they are paid.
Step 7: Gather Your Documents
You will typically need:
- Photo ID
- Recent payslips (usually the last two)
- Bank statements and credit card statements
- Latest tax return or notice of assessment (self-employed)
- Current loan statements
- Details of debts, expenses and dependants
- Rates notice or property details
Step 8: Apply
Submit your application. The lender will check your income, expenses, credit history and the property’s value. They will assess your ability to repay, including at a higher interest rate buffer, as required by regulators.
Step 9: Approval and Valuation
The lender arranges a valuation, then issues a formal approval. Read the loan contract carefully before signing.
Step 10: Settlement
Your new lender pays out your old loan and takes over the mortgage. Your old lender releases their mortgage, and your new loan begins. Settlement often takes a few weeks.
Costs of Refinancing
Refinancing is not free. Consider these possible costs:
| Cost | What to Know |
|---|---|
| Discharge (exit) fee | Charged by your old lender to close the loan |
| Application or establishment fee | Some lenders charge, many waive |
| Valuation fee | Sometimes free or covered by the lender |
| Settlement fee | Legal and administrative costs |
| Mortgage registration and discharge fees | Charged by the state government |
| Break costs | If you leave a fixed loan early, these can be significant |
| Lenders Mortgage Insurance (LMI) | May apply if your LVR is above 80% |
Add up these costs and compare them to your savings. Many people aim to recoup them within one to two years.
Should You Refinance to a Fixed or Variable Rate?
Variable rate
- Rate moves with the market
- More flexible, with offsets and extra repayments
- Payments can rise or fall
Fixed rate
- Rate stays the same for 1 to 5 years
- Predictable repayments
- Limited extra repayments and break costs if you leave early
Split loan
- Part fixed and part variable, giving a mix of certainty and flexibility
The best choice depends on your budget, risk tolerance and outlook.
Refinancing Cashback Offers
Some lenders offer cashback to new refinancing customers. These can be attractive, but:
- Check the minimum loan size required
- Look at whether the cashback comes with a higher rate or fees
- Compare the total cost over time, not just the upfront reward
- Note any clawback if you leave within a set period
A big cashback with an uncompetitive rate can end up costing you more.
Common Refinancing Mistakes to Avoid
- Focusing only on the interest rate and ignoring fees
- Forgetting break costs on a fixed loan
- Extending your loan term and paying more interest overall
- Falling for a cashback offer without checking the rate
- Not asking your current lender to match a better rate
- Applying with several lenders at once, which can hurt your credit score
- Refinancing again and again without calculating the costs
Can You Refinance With Bad Credit or Low Equity?
It can be harder but is not impossible.
- Low equity: You might have to pay LMI or stay with your current lender.
- Bad credit: Specialist or non-bank lenders may be an option, though rates are usually higher.
- Self-employed: Expect more documentation, such as two years of tax returns.
Speak to a broker who has experience with your situation.
Frequently Asked Questions
How much can I save by refinancing?
It depends on your loan size, rate difference and fees. A reduction of even 0.5% to 1% can save thousands over the term.
How often can I refinance?
There is no legal limit, but costs add up. Only refinance when the savings outweigh the costs.
Does refinancing affect my credit score?
Applications leave an enquiry on your credit file. Multiple applications in a short time can lower your score temporarily.
How long does refinancing take?
Usually 2 to 6 weeks, depending on the lender and your circumstances.
Do I need a valuation to refinance?
Usually yes, though some lenders use automated or desktop valuations.
Can I refinance while on a fixed rate?
Yes, but you may pay break costs. Ask your lender for a quote first.
Is it better to use a broker or go directly to a bank?
A broker can compare more options, while going direct may be simpler if you only want to check your own bank. Many people do both.
Final Thoughts
Refinancing can be one of the smartest money moves for Australian homeowners, but only if you do the maths. Compare loans, factor in every cost, ask your current lender to match a better deal, and choose the loan that suits your goals. A regular home loan health check, at least once a year, can help you avoid paying more than you need to.
Disclaimer: This article is general information only and is not financial or credit advice. It does not consider your personal circumstances. Loan terms, rates and fees change, so check with lenders and consider speaking to a licensed mortgage broker or financial adviser.