Refinance your home loan

When should you refinance your home loan?

Many Australians set and forget their home loan, staying with the same lender for years while paying an uncompetitive rate. Banks count on this loyalty, often reserving their best rates for new customers while existing borrowers quietly pay more. Refinancing is the most effective way to reclaim those savings.

Your fixed rate is ending

If your fixed rate period is ending and you are about to revert to a much higher variable rate, refinancing at the end of that period can lock in a better deal without a break cost. The fixed rate ending guide covers the timeline and your options.

Your rate has drifted above the market

If interest rates have dropped since you took out your loan, or your lender has not passed on cuts in full, you could be paying significantly more than necessary. Check your rate against the current home loan interest rates.

Your property is worth more

If your property has increased in value, you may now qualify for a lower LVR tier, which attracts better rates.

You need equity or a different loan set-up

Beyond rate savings, refinancing is also the tool for accessing equity for renovations or investments, consolidating high-interest debts like credit cards and personal loans into your mortgage at a much lower rate, or changing loan features such as adding an offset account or switching between fixed and variable.

How much does it cost to refinance?

On a variable rate loan, usually $500 to $1,500: a discharge fee from your current lender ($150 to $400), two state land registry fees to move the mortgage on the title, and sometimes a valuation or settlement fee, both of which many lenders now waive. Exit penalties were banned on loans written after 1 July 2011.

If you are on a fixed rate, breaking it early adds a break cost that can run from nothing to tens of thousands, so ask your lender for a written quote before you decide.

The refinancing costs guide lists every fee with typical ranges, works through a $300,000 example, and explains how break costs are calculated and which costs you can avoid.

Refinance cashback offers: are they worth it?

Several lenders pay $2,000 to $4,000 for refinancing to them, usually with a minimum loan of $250,000 to $700,000 and an LVR of 80% or less.

The rate still matters more: on a $500,000 loan, a rate 0.20% higher costs $1,000 a year, so a $4,000 cashback is gone in four years while the higher rate continues. Compare total cost over the period you expect to hold the loan, and treat the cashback as a bonus for choosing between lenders with similar rates.

The refinance cashback offers page lists which lenders are paying one right now, the tiers and conditions, and the lenders that are not.

Can I refinance with the same bank?

Yes, and it is often the fastest win. Asking your existing lender to reprice your loan involves no discharge or registration fees and no new application.

The usual approach is to get a written offer from another lender first, then ask your bank to match it. If they will not, you switch. Either way you end up on a better rate, and a broker will typically run both steps for you.

Cash-out refinancing: accessing your home equity

Cash-out refinancing lets you tap into the equity you have built in your home. As property values rise and you pay down your mortgage, the gap between your property value and loan balance grows. This equity can be unlocked for home renovations, investing in shares or additional property, funding education, or consolidating higher-interest debts.

How much equity can you access?

Most lenders allow cash-out refinancing up to 80% LVR without Lenders Mortgage Insurance. If your home is valued at $900,000 and you owe $350,000, you could potentially access up to $370,000 in equity ($900,000 x 80% minus $350,000). You are increasing your total debt, so the purpose needs to justify the additional borrowing. The cash-out refinance guide and the home equity loan guide cover the rules and the alternatives.

Equity for an investment

If you are using the equity for investment purposes, the interest on the additional borrowing may be tax-deductible. Keep the investment portion separate from your personal mortgage for clean tax reporting; a split loan is the usual structure.

Debt consolidation through refinancing

Rolling high-interest debts into your home loan can dramatically reduce your monthly repayments and total interest paid. Credit cards typically charge 18 to 22% interest, personal loans 8 to 14%, and car loans 6 to 10%, while a home loan might charge 5.99 to 6.50%.

If you have $30,000 in credit card debt at 20% and $20,000 in personal loans at 10%, you are paying approximately $8,000 per year in interest on those debts alone. Consolidating this $50,000 into your home loan at 6% reduces the interest cost to $3,000 per year, a saving of $5,000 annually.

The caveat is that while your rate drops significantly, you are extending the repayment period by rolling short-term debt into a 30-year mortgage. Keep repayments on the consolidated portion at their old level to clear it faster, and have a plan to avoid accumulating new unsecured debt.

Refinancing a car loan instead? That works differently; see car loan refinancing.