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Should you refinance your home loan?

Should you refinance your home loan?

Life has a way of getting in the way of the best laid plans. Circumstances change, finances fluctuate and extra expenses come along when we least expect them. Refinancing your home loan can be a great option for borrowers whose circumstances may have changed since applying for their existing home loans.

Should you consider refinancing your mortgage?

  • If you are struggling to meet your current repayments on your home loan.
  • If interest rates were to decrease.
  • To access the equity in your current home so you can purchase another property.
  • Borrow additional funds for whatever reason such as to renovate the kitchen or to purchase a new car.
  • To consolidate your credit card/s and other debts you may have into the one loan.
  • Apply for a better mortgage at a lower rate that may offer extra features and flexibility.

The right time to consider refinancing your mortgage is when the difference between the average variable interest rate of the market and your current interest rate is close to 1 percent.

For example, if you took an introductory rate home loan five years ago and now have an outstanding balance of $320,000. If you pay a variable rate of 7.81 percent, your monthly repayments work out to about $2,640. Then if the interest rate remains the same for the entire term, you will pay $633,334 in total.

However, if you switched to the a basic variable rate of 6.80 percent, by refinancing your loan over to this rate you could save almost $200 per month in repayments and nearly $47,280 in interest over the loan term.

If you are considering refinancing your mortgage, see how much you could potentially save by comparing home loans online at RateCity as you might find better deals that you could be missing out on.

Be aware

  • Check the interest rates.
  • Look at the term of the loan. The longer the term the more interest you will pay.
  • Know the fees and charges. Will you incur a fee if you pay off your home loan early? Are there any legal or application fees?

Be cautious

  • Don’t refinance your debt just to borrow more and worsen you financial circumstances.
  • Be extremely cautious when putting up an asset or you risk losing that if you can’t make the repayments.
  • Watch out for dodgy mortgage brokers or lenders. Make sure they are thorough and upfront when going through all the fees and charges with you.

Remember if you are thinking about making the switch, you should work out how much it will cost you to break out of your loan. Also find out if your new loan will require any establishment and setup fees. It may be a good idea to consider seeing what else is on the market every 12 months or so to see how your home loan compares.

Do the maths by using the RateCity home loan repayment calculator and compare over 2000 Australian home loans using our home loan comparison tool.

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Learn more about home loans

How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.  

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.


Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.