How and when to refinance your home loan


Our guide to always getting the best deal on your existing home loan

Refinancing happens when you transfer your home loan from one lender to another.

There are common triggers which may cause someone to consider refinancing. These include renovating or extending a home, having the fixed rate period on an existing loan come to an end, or wanting to consolidate debt - including credit cards, personal loans and car loans - into a home loan. 

But there are compelling reasons to refinance without waiting for something to trigger the switch.

Why should you refinance your home loan?

In today’s market, there are many reasons for you to consider refinancing, Macquarie Personal Banking's Cameron Harris says.

“It is a competitive environment for lenders,” he says. “Banks are constantly introducing new product features to attract borrowers and home loans are evolving.”

Look at the loan’s comparison rate rather than the headline rate because that’s the real cost of servicing your loan.

Harris points out that, as well as lower interest rates, some home loans offer features such as multiple offset accounts, fee-free extra repayments and the ability to have your salary paid directly into the loan. Each of these has the potential to save a borrower a substantial amount of money and shave years of the term of a home loan, he says.

“So if you’re still on the same terms and your home loan has the same features as a couple of years ago, you should consider looking around for a better deal.” 

When shouldn’t you refinance your home loan?

That said, there are times when you probably shouldn’t refinance too. That usually come down to cost.

“Most lenders will offer attractive headline rates to people looking to refinance,” Harris says. “But you shouldn’t get carried away with that.”

Instead, he urges you to look deeper and compare the real cost of the loan. “Pay attention to the Standard Variable Rate (SVR) that your loan will revert to at the end of the honeymoon period. Also, look at the loan’s comparison rate rather than the headline rate because that’s the real cost of servicing your loan.”

The comparison rate will take into account ongoing fees, such as account fees and annual package fees. On top of this, you should also consider any upfront fees you’ll need to pay for switching, such as establishment fees, valuation and legal fees and even lender’s mortgage insurance (LMI) or low deposit fees (LDF).

Then there are the potential fees from the lender you’re leaving. These might include discharge fees for ending your loan early and, if you’re on a fixed interest rate, a potential penalty - in the form of break costs - for ending your loan before the fixed term expires.  

Use our refinancing calculator to compare the cost of refinancing with the cost of staying on your current loan

Harris says that you should even look beyond the loan terms and consider your finances more holistically. “Consider the other features you currently receive or are being offered too. Your loan may be bundled with other products such as credit cards, access to an offset account via a debit card and discounted insurance. Take into account the cost of replacing these also.”

What should you do before refinancing?

Before refinancing, you should always contact your existing lender to see whether you can negotiate a better rate from them than you’re currently receiving or being offered.

Harris says that when you do, it pays to have evidence of the rate you’re being offered to use as a bargaining tool. “The more cards you can put on the table, the better deal you’re likely to get.” 

How does the refinancing process work?

Finally, greater competition among lenders hasn’t just led to lower interest rates and better products. It has also made the loan application process much more straightforward.

Today, refinancing is often a relatively painless process with little paperwork required.

Some lenders can approve refinancing applications over the phone and in less than an hour. This even includes the option of signing contracts electronically. And in no time at all, you’ll be enjoying all the benefits of your new home loan.

We’re here to help

To find out more about refinancing your home loan speak to a Macquarie home loan specialist.

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Unless stated otherwise, this information has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL and Australian Credit Licence 237502 and does not take into account your objectives, financial situation or needs. You should consider whether it is appropriate for you. All applications are subject to Macquarie's standard credit approval criteria.