Refinancing Guide

Understanding refinancing benefits

Refinancing replaces your current home loan with a new loan, either with your existing lender or a different financial institution. This process can provide significant financial benefits through better interest rates, improved loan features, or access to property equity.

Primary reasons to refinance

Borrowers refinance for various financial and strategic reasons, with interest rate savings being the most common motivation for changing loans.

Interest rate improvements: Securing a lower interest rate can save thousands of dollars over your loan term while reducing monthly repayment obligations and improving cash flow.

Accessing property equity: Refinancing can unlock equity built up in your property for renovations, investment purposes, debt consolidation, or other major financial goals.

Better loan features: Switching to loans with superior features such as offset accounts, redraw facilities, or package benefits can provide ongoing value beyond simple rate improvements.

Loan structure changes: Refinancing enables changes between fixed and variable rates, adjusting loan terms, or switching to interest-only arrangements for strategic purposes.

When refinancing makes sense

Timing your refinance decision involves analyzing current market conditions, your personal circumstances, and the potential benefits versus costs involved.

• Interest rates available are 0.5% or more below your current rate
• Significant changes in personal or financial circumstances
• Current loan lacks features that would benefit your situation
• Your loan-to-value ratio has improved significantly since original approval
• Fixed rate period ending and better options available

The refinancing process

Successful refinancing requires systematic approach through research, application, and settlement phases to ensure smooth transition between loans.

Research and comparison phase:

1. Compare available loan products and lenders comprehensively
2. Calculate potential savings against refinancing costs
3. Assess loan features and benefits beyond just interest rates
4. Consider lender reputation and service quality factors

Application and approval phase:

1. Gather required documentation including income and asset verification
2. Submit application for pre-approval with chosen lender
3. Formal application submission once pre-approval confirmed
4. Property valuation arranged by new lender
5. Final loan approval and documentation preparation

Settlement phase: Settlement involves coordinating the payout of your existing loan and establishment of your new loan arrangement, typically handled by legal representatives.

Costs involved in refinancing

Refinancing involves various costs that must be weighed against potential benefits to determine whether the switch provides net financial advantage.

• Application or establishment fees ($0-$1,000 depending on lender)
• Property valuation fees ($200-$600 for standard residential properties)
• Legal costs and conveyancing fees ($300-$1,500 for documentation)
• Discharge fees from existing lender ($150-$400 typically)
• Lender's mortgage insurance if LVR has increased
• Government charges for mortgage registration ($100-$200)

Fixed rate break costs

Borrowers with fixed rate loans may face substantial break costs when refinancing before their fixed period expires, particularly if interest rates have fallen since the loan was established.

Economic break cost calculation: Break costs represent the economic loss to lenders when borrowers exit fixed rate contracts early, calculated based on the difference between your fixed rate and current market rates.

Minimizing break costs: Consider timing refinancing to coincide with fixed rate expiry, negotiate with existing lender for rate matching, or ensure break costs are outweighed by long-term refinancing benefits.

Required documentation

Lenders require comprehensive documentation to assess your refinancing application, similar to requirements for new loan applications.

• Recent payslips and employment verification letters
• Tax returns and financial statements for self-employed borrowers
• Bank statements covering 3-6 months of transaction history
• Current loan statements showing balance and payment history
• Property valuation (arranged by new lender)
• Identification and residence verification documents

Maximizing refinancing success

Strategic approach to refinancing involves preparation, professional advice, and careful consideration of all loan aspects beyond just interest rates.

• Improve credit score before applying for best rate offers
• Organize all required documents before starting application process
• Consider professional mortgage broker advice for complex situations
• Evaluate total loan package rather than focusing solely on rates
• Read and understand all terms and conditions before committing