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How long does it take to refinance?

Mark Bristow avatar
Mark Bristow
- 7 min read
How long does it take to refinance?

Refinancing your home loan can help you enjoy a range of benefits, from lower interest rates to flexible features and benefits. However, the process of refinancing will require some time and effort. Depending on the lender and your financial situation, the refinancing process could take anywhere from a few weeks to just three days.

There are two main stages to the refinancing process; preparing to refinance and actually refinancing your mortgage.

Preparing to refinance

What is your refinance purpose?

Before you refinance, you’ll need to have a clear aim in mind to guide your decision making. It could be to lower your monthly repayment amount, consolidate debt, pay off your loan faster, or many other reasons.

Gather your documents

Next, locate all the necessary info about your current loan and any relevant paperwork. This may include mortgage statements, bank statements, payslips and more.

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Once you have all the information you need, you can start comparing alternative loans and shortlist options that suit your aim.

Calculate the costs and compare to the savings

With a specific product in mind, you can then begin to calculate switch costs and determine the break-even point of your loan switch.

Refinancing your mortgage

Following this initial process is complete, and you have a loan in mind that you want to switch to, you will begin the second phase of the refinancing process. A standard refinance could take between two and four weeks to fully process, while a fast refinance could take as little as three days.

Suitability talk

The lender will want to determine whether your employment status and financial situation will meet the serviceability criteria of the loan for which you wish to apply. This will generally be conducted over the phone and take about 20-30 minutes.

This chat is important because the lender should be able to give you a basic idea of whether your loan application would be rejected based on the initial information you provide. This can prevent you from applying for a loan that is greatly unsuitable and help you avoid a black mark on your credit report from a knocked back application.

Sending identity and finance documentation

Next, you’ll need to send the lender your documents to confirm your identity, income, expenses, assets and liabilities. What each lender needs may vary, so ask for a specific list to make sure you cover everything required, including whether you can send these documents online or by mail. Having these documents prepared before you get to this part of the process will help things go a lot smoother.

Valuation

Once the lender has received your paperwork and decides to progress the application, they will organise a valuation of your property to determine the loan to value ratio, which generally needs to be 80 per cent or less. Valuations can be done remotely or in person, depending on the property and your financial situation.

Loan approval

If everything goes smoothly up until this point, you will then have the lender approve the loan. The fast-tracked version of refinancing could get you to this point within 72 hours. The standard process could take up to two weeks.

Settlement

After the loan is approved, your new lender will contact your old lender to have the property title and debt transferred. This is the settlement process which can take a couple of weeks to be completed and there may be fees involved.

What is the Fast Track refinancing process?

While not offered by all lenders, the Fast Track refinancing process could see your mortgage switched to a new lender in as little as three days.

Selected lenders offer FastReFi options to help reduce the time between your decision to refinance and them closing the deal. The benefit for your new lender is that this gives your old lender less time to offer you incentives to stay. The benefit for you as a customer is that you can have the process completed in a matter of days rather than worrying about it for an extended period. 

The Fast Track process reduces the time taken to refinance because your new lender pays your old lender the outstanding amount of debt before they are given the title to your home. While this cuts out a lot of back and forth communication between lenders, it also means your new lender takes on the added risk of being out of pocket before they receive the security for the loan.

To compensate for this risk, the new lender may ask you to pay for title insurance to cover them if there is a hiccup in transferring your home’s title from the old lender after the loan has been settled. Your new lender may offer to cover this expense in some circumstances.

Pay set-up and discharge fees

Post-settlement, you will need to pay any outstanding set up and discharge fees to your new and former lender. Discharge fees (which are different to exit fees and break fees) can range between $100 and $400, and set-up fees may be between $300 and $1000.

Some lenders may offer to waive or cover these fees to help attract your business. Others may offer cashback deals to help ease some of your financial burden after switching loans.

You may also have the option to roll the switching fees into your home loan, to be paid off over the long term along with your property. While this may save you some money upfront, it may cost you significantly more in interest charges over the long run.

How long does it take to break even after refinancing?

Once you’ve refinanced your mortgage, your next question may be how long it will be before the interest savings cover the cost of switching loans.

To answer this question, you’ll need to tally up your total switching cost, as well as the interest saving on your new loan compared to your old loan. From here, you can calculate the length of time before you’ll ‘break even’ on your loan.

Example:

Eve has decided to refinance her home loan with one of Australia’s big banks.

Her current mortgage is $600,000 on a 6% interest rate, with 20 years of repayments. This means her current monthly repayment is $4299

After comparing her options and consulting her mortgage broker, she decides to switch to a smaller non-bank lender. By refinancing to a home loan with a 5% interest rate, she could reduce her monthly repayment to $3960. That’s a saving of $339 per month.

When Eve leaves her current lender, she pays the bank’s discharge fee of $300. When she makes her application with her new lender, she pays a $600 application fee. Once her switch is approved, she pays a $100 settlement fee. 

Overall, Eve’s total switching cost is $1000 – she won’t break even on her new home loan until her savings reach this figure. 

Given that Eve will be saving $339 per month in interest charges, this means it will take just less than three months to break even on her refinancing costs.

Keep in mind that even if you refinance your home loan onto a lower interest rate, you could keep making the same repayments each month. Extra money you pay onto a home loan goes towards the principal, rather than the interest. This can get you ahead on your repayments, get your loan paid off faster, and ultimately save in total interest paid over the full loan term.

To see the effects that different interest rates, loan terms and other factors can have on your home loan repayments when you switch, and determine approximately how long it will take to break even with your switching costs, you can use our home loan calculator.

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Product database updated 22 Jun, 2024

This article was reviewed by Personal Finance Editor Peter Terlato before it was published as part of RateCity's Fact Check process.