Refinancing means replacing your current home loan with a new loan, either with your current lender, or a new one. It’s something many Australian homeowners consider at different stages of their loan. Under the right circumstances, it may be a way to reduce your interest rates, get access to more loan features, or adjust your loan to be more suited to a change in your family life.
Regardless of what you’re looking for, it’s often beneficial to regularly review whether your current loan still fits your needs.
This guide will help you with the basics of refinancing; what it involves, why people do it, and what to think about before making a decision.
Also, if you need help with any home loan terms, we’ve added a guide to the end of this article to help decode some of the jargon. Otherwise, let’s jump in!
What to know first
- Refinancing replaces your current home loan with a new one
- It may involve switching lenders or changing products with your existing lender
- People refinance for a range of reasons, from better rates to more flexibility
- Costs, timing, and eligibility can all influence whether it makes sense for you
What is refinancing a home loan?
Refinancing means taking out a new home loan to pay off your existing one. Your new loan then becomes the one you repay going forward.
This can happen in two ways:
- Moving to a different loan with your current lender
- Switching your loan to a new lender entirely
In either case, the property remains the same but the loan structure around it changes. The new loan may have different interest rates, features, fees, or repayment terms.
If you’d like more info on some of the potential improvements that refinancing can bring to your situation, read our article on benefits of refinancing.
Why people refinance their home loan
There isn’t a single reason people might want to refinance their home loan. Instead, it’s often a response to changes in the lending environment or in a borrower’s personal situation.
1. Reviewing interest rates and loan costs
Home loan rates and fee structures are always changing depending on the economic climate. It’s common for homeowners to review their loan against other lenders, especially if it’s been a few years since they started paying off their original loan.
2. Accessing different loan features
For a lot of borrowers, their original loan may not offer them the features they now want. Refinancing can help unlock some of these. For example:
- Offset accounts
- Redraw facilities
- More flexible repayment options
In short, refinancing can be a way to move your loan to one that better supports how you like to manage money.
3. Changes in personal or financial circumstances
Significant life events can change how suitable your current loan is. For example, you might experience:
- Changes in income or employment
- Growing household expenses
- Shifts in financial priorities
These changes may lead to a review of your loan structure or repayments, to find a loan that’s more suitable.
4. Adjusting your loan structure
In some cases, borrowers refinance to:
- Change their loan term (for example extending it to reduce their repayments)
- Switch between fixed and variable rates
- Consolidate other debts
- Access equity in their property
These adjustments can affect both repayments and how the loan works over time.
When is refinancing not a good idea?
Refinancing isn’t always the right option. Therefore, it’s important to have a good knowledge of your current loan, and if changing will actually benefit you from a cost or convenience standpoint. Some of the reasons it’s worth reassessing the jump to refinance could be:
- The costs outweigh the benefits
Fees involved in exiting and setting up loans can reduce the cost saving of switching - You’re in a fixed-rate period
Ending a fixed-rate loan early can involve break costs - You plan to sell your property soon
The time and cost involved may not be worthwhile for a short-term change - Your financial position has changed
Lenders will typically reassess your income, expenses, and credit profile, which may affect eligibility
To properly assess if changing is a good idea, it’s best to get a full understanding of your current home loan and the terms, fees and penalties that might be applied if you switch.
What to think about before refinancing
Before deciding whether to refinance, it can help to review your situation from a few different angles.
Be clear about your goal
Start by identifying what you want to achieve. This might include:
- Reducing repayments
- Gaining more flexibility
- Paying off your loan sooner
Having a clear objective can help guide how you compare different refinancing options.
Understand your current loan
Look closely at your existing loan details, including:
- Interest rate and structure
- Remaining balance and loan term
- Fees and available features
This provides a baseline to compare new options against, and what you might pay if you decide to move from your current loan. You can use our refinancing calculator to estimate how much you could be saving if you switch to Ubank.
Compare more than just the interest rate
While interest rates are important and often highlighted by lenders, other factors can shape the overall value of a loan:
- Upfront and ongoing fees
- Repayment flexibility
- Loan features
- Total cost over the life of the loan
A lower rate doesn’t always mean a lower overall cost, so it’s best to do your homework on what extra costs a new loan can include.
Consider your loan term
Extending your loan term may reduce your regular repayments but could increase the total interest paid over time. Shortening your term may increase repayments but reduce the overall loan cost.
Check your eligibility
Refinancing typically involves applying for a new loan. This means lenders will assess:
- Your income and employment
- Your expenses and debts
- Your credit history
- The value of your property
How to refinance a home loan: what to expect
While details vary between lenders, the refinancing journey usually follows a similar path.
1. Review your financial position
Gather all the relevant information about your income, expenses, assets, and current loan.
2. Compare loan options
Do your own research on different lenders, loan types, and features to see what’s out there.
3. Submit an application
Provide documentation such as identification, income evidence, and loan details.
4. Assessment and approval
The lender reviews your application and may arrange a property valuation.
5. Settlement
If approved, your new lender pays out your existing loan and sets up your new mortgage in your name.
It’s worth noting that this process often takes a few weeks, depending on the lender and how complex your application is.
For a comprehensive to-do list when it comes to refinancing your home loan you can check out our checklist article.
Costs and trade-offs to understand
Refinancing involves a range of potential costs and considerations.
Common costs
- Discharge or exit fees from your current lender
- Application or establishment fees for the new loan
- Government or registration fees
- Break costs for fixed-rate loans
- Possible lender’s mortgage insurance (depending on your loan-to-value ratio)
Trade-offs
- Lower repayments may come with a longer loan term
- Loans with fewer fees may have fewer features
- Feature-rich loans may carry higher costs
Understanding these trade-offs can help you evaluate options more clearly.
Comparing refinancing options
When researching loans, it’s good to look at:
- Interest rate type (fixed, variable, or split)
- Fee structure and comparison rate
- Features such as offset or redraw
- Flexibility of repayments
Ubank refinancing options
Ubank offers home loans that can be used for refinancing (depending on eligibility and circumstances). These loans include:
- A digital application
- Fixed, variable, and split loan types
- Easy to understand Neat & Flex loans
- Customer service 7 days a week
Looking to explore the ins and outs of refinancing in more detail? You can check out our other tips & guides to learn more about the process here:
- Mistakes to avoid when refinancing
- What you need to do before refinancing
Just to recap…
Refinancing a home loan involves replacing your current loan with a new one that may be a better fit for your current needs. For some homeowners, it can be a way to adjust loan features or respond to big life changes. But it might not be the right fit for you due to costs, timing, or eligibility.
It’s a matter of looking closely at your current loan and figuring out if refinancing is the path to a better home loan solution for you.
A quick guide to some of the jargon
If you’re new to refinancing, some of these terms may be unfamiliar. Here’s a quick glossary to help:
Application fee
A fee some lenders charge when you apply for a new home loan.
Break costs
Fees that could apply if you leave a fixed-rate loan before the end of the fixed period, or switch from a fixed-rate home loan to a variable rate loan.
Comparison rate
A rate that combines the interest rate with most fees and charges to give a more complete picture of the cost of a loan.
Discharge fee
A fee charged by your current lender when you close or pay out your existing home loan.
Equity
The difference between your property’s market value and the remaining balance on your loan. This might be accessed when refinancing, depending on your situation.
Fixed interest rate
An interest rate that stays the same for a set period, allowing consistent repayments during that time.
Loan term
The length of time you have to repay your home loan, often ranging from 20 to 30 years.
Loan-to-value ratio (LVR)
The size of your loan compared to the value of your property, expressed as a percentage. For example, an 80% LVR means you’ve borrowed 80% of the property’s value.
Lender’s Mortgage Insurance (LMI)
Insurance that may be required if your LVR is above a certain level. It protects the lender, not the borrower.
Offset account
A transaction or savings account that’s linked to your home loan. The balance in this account is offset against your loan balance when calculating interest.
Redraw facility
A feature that allows you to access extra repayments you’ve made on your home loan.
Split loan
A loan that is divided into fixed and variable portions, allowing a mix of both interest rate types.
Variable interest rate
An interest rate that can change over time, often in response to market conditions.
Valuation
An assessment of your property’s market value, usually required by lenders during the refinancing process.
