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What is refinancing?

Refinancing or re-mortgaging a home loan refers to switching from one mortgage to another, often with a different bank or mortgage lender.

Why should I refinance?

There are many different reasons to consider refinancing a home loan. Some of the most popular include:

  • To reduce your loan costs: Refinancing to a home loan with low rate may help make your interest repayments more affordable, and allow you to save money over the life of the loan.
  • To enjoy more flexible features: Switching to a home loan that allows you to make extra repayments, or access redraw facilities or offset accounts may allow you to better manage your mortgage payments. This could help you to pay down your loan more quickly and save money over the longer term.
  • To free up some equity: If you’ve paid off a chunk of your home loan, you may be able to use this equity to secure another loan, such as a line of credit. This could help you pay for renovations or other major projects.
  • To consolidate debts: If you have outstanding personal loans or credit cards, you may be able to add these debts onto your mortgage to pay off over time. This can help you pay less interest in the short term, thanks to the generally lower interest rates of home loan, though paying these debts off over a longer term means you may pay more interest in total.
  • To find a lender that treats you better: If you’re unhappy with your bank’s customer service, refinancing may let you switch to a lender that listens to you. As well as banks, there are a range of non-bank mortgage providers to choose from. This includes online-only lenders, which don’t have branches to visit, but can often offer lower interest rates.
  • To take advantage of incentives: Some lenders offer special discounts and other benefits to new customers, from reduced interest rates to cashback deals. Refinancing to a new lender may let you enjoy these special benefits, though it’s important to compare the value they offer to the loan’s overall cost before making a decision.

When is a good time to refinance my home loan?

The best time for you to refinance your home loan will depend on your personal and financial circumstances, as well as your refinancing goals. 

If you believe you’re paying too much for your current home loan, and that the interest rate, ongoing fees, features and benefits offered by another lender may better suit your personal goals and financial needs, now and in the future, refinancing could be worth considering.

If you have a fixed rate home loan, your loan may revert to a higher variable rate when the fixed rate term comes to an end. You may be able to refinance to a lender offering a lower rate than your current lender's revert rate.

Remember that if you have less than 20 per cent equity in your property (also known as having a loan to value ratio or LVR higher than 80 per cent), you’ll likely have to pay Lenders Mortgage Insurance (LMI) when you refinance, even if you’d already paid LMI previously when you applied for a loan with a low deposit. If you’d prefer to avoid having potentially thousands of dollars added to the cost of your refinance, you may want to wait until you've built up more equity before you refinance.

How long does it take to refinance?

The refinancing process in Australia typically takes between two and four weeks, depending on your situation and the lenders involved.

However, some lenders offer a Fast Track refinance option, which may allow refinancers to switch loans in as little as three days.

Even though refinancing can require some of your time and effort, the potential benefits could make a significant difference over your remaining home loan term.

How much does it cost to refinance?

Refinancing isn’t free, but the benefits of refinancing may help to make up for its costs.

When you refinance, you may have to pay the following:

  • Discharge fees (average $300): Covers the paperwork when you end a home loan, including when you switch to a new lender.
  • Upfront fees (average $570): Covers the admin cost of setting up your new home loan.
  • Valuation fee (varies): Covers the cost of valuing the property as part of the mortgage application process.
  • Break costs (varies): If your existing home loan is on a fixed interest rate, you may need to pay a fee to refinance from this arrangement.
  • Lender’s Mortgage Insurance (LMI) (varies): An insurance policy that covers the lender (not the borrower) against the risk that you’ll default on your mortgage repayments. Charged when your deposit and/or equity used to secure a loan is less than 20 per cent of the property value. The less security you can provide, the more the LMI may cost.

Before you refinance, consider working out the total cost of switching mortgages, and estimate how long it may take for the savings on your new loan to make up the difference.

TIP:

A home loan's comparison rate combines its interest rate with its application fees and standard charges, giving you a better idea of its overall cost at a glance. However, not every charge is included in the comparison rate, so it's still important to conduct a detailed comparison.

Is refinancing worth the cost?

If refinancing your mortgage would let you enjoy more value from your mortgage, depending on your financial goals, then you may consider refinancing to be worth the cost. 

One simple way of estimating the value of refinancing is to look at the savings on interest, fees and other charges compared to your original loan. The sooner these savings make up for the cost of switching, the more value the loan may offer you, depending on what other features and benefits it may offer. 

Some mortgage lenders also offer cashback deals and similar incentives to customers who refinance with them. If you compare the value of the cashback deal or special offer to the cost of refinancing, and you come out ahead, you may consider refinancing worth the cost, depending on your situation. 

A mortgage broker may be able to help you work out if your home loan refinance would be worth the cost in relation to your financial situation.

TIP:

Some lenders may offer to cover your discharge fees and/or forfeit their upfront fees to earn your business. It could be worth negotiating your fees before signing a loan contract.

How do I refinance my home loan?

The process of refinancing a home loan is a lot like applying for a whole new mortgage, though some of the steps and requirements may be slightly different to when you applied for your first home loan. 

What do I need to refinance?

The exact paperwork you’ll need to refinance a home loan will depend on the lender, but some of the common requirements include: 

  • Past mortgage statements: To confirm your current interest rate, your equity, and how much is left on your mortgage
  • Employment details and payslips: To confirm your income and employment status
  • Identification details e.g. passport, driver’s licence etc.: To confirm your identity and residence
  • Details of any other assets (e.g. cars, boats, other valuables) or liabilities (e.g. personal loans, car loans, credit cards): To provide a clear picture of your financial status
  • Bank statements: To confirm your income and regular living expenses
TIP:

When you tell your current lender you have found a new loan with a better rate and/or better fees, your current lender may try to persuade you to stay.

Before you start planning to refinance, you may want to speak to your current lender about their flexibility on rates or fees, and see if they’re willing to negotiate to keep your business.

What are the steps of refinancing?

  1. Define your refinance goal: Do you want to reduce your loan repayments? Pay off your loan quicker? Get cash out of the property? Consolidate debts?
  2. Find your current loan’s details: This includes your current interest rate, loan amount, and monthly repayment, as well as the current value of your property and the discharge fee on your current loan.
  3. Compare alternative home loans: Compare interest rates, annual fees, features and benefits, as well as eligibility requirements and lending criteria, and consider which loan options may be able to help you achieve your goals. If you need help, you can use a comparison website, or contact a mortgage broker.
  4. Work out your switch cost: Check what fees and charges you’ll need to pay to exit your current loan and switch to a new loan offer. You could also try to find out if a new lender would be willing to cover your discharge fee and/or forfeit its upfront fee to earn your business.
  5. Calculate break-even point: Work out how much you could save per month by switching to a cheaper home loan, then work out how long it would take for these savings to make up the switch costs.
  6. Make your decision: Based on the information at hand, decide if you still want to switch lenders, and which mortgage you’d like to choose.
  7. Apply: Contact your new prospective lender and start the home loan application process.
  8. Get your valuation: Most lenders require a valuation as part of the mortgage application process, including when you’re refinancing, to confirm how much money they can safely lend you. These valuations may be conducted online, based on information about the local area, property size and condition, while sometimes a valuer will come out to physically inspect the property.
  9. Receive your approval or rejection from the lender.
  10. Transfer and settle your loan.

Frequently asked questions

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.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

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.  

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.

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.

 

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

Is a home equity loan secured or unsecured?

Home equity is the difference between its current market price and the outstanding balance on the mortgage loan. The amount you can borrow against the equity in your property is known as a home equity loan.

A home equity loan is secured against your property. It means the lender can recoup your property if you default on the repayments. A secured home equity loan is available at a competitive rate of interest and may be repaid over the long-term. Although a home equity loan is secured, lenders will assess your income, expenses, and other liabilities before approving your application. You’ll also want  a good credit score to qualify for a home equity loan. 

What is a secured home loan?

When the lender creates a mortgage on your property, they’re offering you a secured home loan. It means you’re offering the property as security to the lender who holds this security against the risk of default or any delays in home loan repayments. Suppose you’re unable to repay the loan. In this case, the lender can take ownership of your property and sell it to recover any outstanding funds you owe. The lender retains this hold over your property until you repay the entire loan amount.

If you take out a secured home loan, you may be charged a lower interest rate. The amount you can borrow depends on the property’s value and the deposit you can pay upfront. Generally, lenders allow you to borrow between 80 per cent and 90 per cent of the property value as the loan. Often, you’ll need Lenders Mortgage Insurance (LMI) if the deposit is less than 20 per cent of the property value. Lenders will also do a property valuation to ensure you’re borrowing enough to cover the purchase. 

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

Can you borrow the deposit for a home loan?

Most lenders will want the majority of your home loan deposit to be made up of ‘genuine savings’ which is income earned from your job. While a small number of lenders may let you use a personal loan or a credit card to help cover the cost of your deposit, this may potentially cost you more in interest, and put your finances at higher risk.

If you haven’t saved a full deposit, it may be possible to effectively borrow the deposit for a mortgage with the help of a guarantor. This is usually a parent of other family member who guarantees your mortgage with the equity in their own property.

It may also be possible to borrow the money for a home loan deposit from a family member (e.g. the Bank of Mum & Dad) or a friend, provided you draw up a formal legal agreement to pay this money back, showing your mortgage lender that you’re taking responsibility.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

Can I get a home renovation loan with bad credit?

If you're looking for funds to pay for repairs or renovations to your home, but you have a low credit score, you need to carefully consider your options. If you already have a mortgage, a good starting point is to check whether you can redraw money from that. You could also consider applying for a new home loan. 

Before taking out a new loan, it’s good to note that lenders are likely to charge higher interest rates on home repair loans for bad credit customers. Alternatively, they may be willing to lend you a smaller amount than a standard loan. You may also face some challenges with getting your home renovation loan application approved. If you do run into trouble, you can speak to your lender and ask whether they would be willing to approve your application if you have a guarantor or co-signer. You should also explain the reasons behind your bad credit rating and the steps that you’re taking to improve it. 

Consulting a financial advisor or mortgage broker can help you understand your options and make the right choice.

Can you remove a cosigner from a home loan?

Taking out a home loan is an act of financial responsibility and a cosigner on a home loan shares that responsibility. For this reason, removing a cosigner from a home loan may not be straightforward. Usually, you can add a cosigner, or become a cosigner, when applying for the home loan. In such a circumstance, the lender may ask you to stipulate the conditions for a cosigner release, which are the terms for removing a cosigner from the home loan. For instance, you may agree that you can remove a cosigner once half the loan amount has been repaid.

However, not stipulating such conditions doesn’t mean it’s impossible to remove a cosigner. If the primary home loan applicant has a sufficiently high credit score and has not delayed any repayments, the lender may be willing to remove the cosigner. You should confirm that doing so doesn’t affect the terms of the loan. If the lender doesn’t agree to remove the cosigner, the primary home loan applicant may have to refinance the loan in order to do so. If there were specific reasons for needing a cosigner and those reasons are still valid, then you may have some challenges with refinancing.

What are the different types of home loan interest rates?

A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan. 

Having understood what are home loan rates in general, here are the two types you usually have with a home loan:

Fixed rates

These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.

Variable rates

With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments.