Compare Refinance Rates 2024

Refinancing your home loan involves changing your existing mortgage terms by switching to a different loan product and/or lender. The goal is usually to secure a lower interest rate, reducing your monthly repayments. 

What does refinancing a mortgage mean?

Refinancing isn't about your home - it's about your home loan. If you've had the same loan with the same lender for a while, you may have noticed your repayments have risen sharply in the past year or so. And if you locked in a fixed interest rate in recent years, you've almost certainly noticed that your repayments will be much, much larger when your fixed rate expires.

So what is refinancing? Quite simply, you take your home loan and move it to a different loan product and/or another lender. This might mean looking for a new fixed rate product if you want to safeguard yourself from further interest rate increases, or you may want a loan with features your current home loan doesn't offer, such as an offset or redraw account or the ability to make extra repayments whenever you can to increase your buffer.

Most mortgage holders switch their home loans every 4-5 years for owners, or every 2-3 years for property investors, because the lower your repayments, the faster you can pay off your loan.

Why should you consider refinancing your home loan?

This is especially beneficial if you’re currently locked into a higher interest rate, reduce monthly repayments or if your fixed rate is about to revert to a less favourable variable rate. In some cases, homeowners refinance to access additional loan features, such as offset or redraw accounts, or to increase their loan amount for renovations or debt consolidation.

When should you refinance your home loan?

Refinancing is typically a good idea when it results in a lower interest rate, enabling you to reduce your monthly payments and pay off your mortgage faster. It’s advisable to review your home loan options regularly, especially whenever interest rates are in the news. Lenders often adjust their offers in response to market changes, and staying informed can help you identify a refinancing opportunity that better suits your financial needs.

There are many reasons homeowners decide to refinance, such as: 

• Reducing your loan size to lower your repayments - and free up your cash flow.

• Switching from a variable interest rate to a fixed rate that protects yourself from potential interest rate hikes (or vice-versa to take advantage of falling rates.) 

• Consolidating debts, like credit cards or a car loan, into your mortgage, potentially reducing overall interest expenses.

• Increasing your loan size to complete home renovations, or purchase another property.

Refinancing your home loan can also support your long-term goals, such as funding renovations or changing your loan structure as you approach retirement.

Should I refinance my mortgage or make extra home loan repayments?

This depends on your individual circumstances. If you already have a home loan that includes an offset or a redraw account, you'll be able to use this to help pay your loan down faster, or to assist you in building up a buffer against future living cost price shocks - including any interest rate increases.

That said, if you have these features but aren't using them much, consider a loan without additional features - because it might have a lower interest rate or fewer fees. For some people, more dollars in their pockets now matters more than how much they're putting away for later. Find out more: Compare Club's guide to Offset and Redraw accounts.

Make sure you read the fine print on your loan contract as there are usually penalties for making extra repayments too often, especially during a fixed-interest rate period. Refinancing can be a good option to help you pay off your home loan faster as well. 

If you refinance to an interest rate that's lower than the one you were paying before, and you're able to continue paying the same amount each month, this can pay off your home loan faster because more of your repayments are paying down your principal loan, and less is going to your interest charge.

What steps should you take before refinancing your home loan?

While getting a lower interest rate is important, other factors should also be evaluated when considering a home loan switch.

• Find out how badly your current lender wants your business Before exploring external refinancing options, contact your existing lender to discuss your intention to switch to a more competitive loan. This proactive approach can often lead to better terms on your current loan, as lenders are typically keen to retain your business. Use any offers your current lender provides as a benchmark against other loans you’re considering.

• Know your equity position Ensuring you have at least 20% equity in your home and maintain a solid credit score while you’re loan shopping. This puts you in a solid negotiating position with most lenders - including your own. It also helps you avoid paying Lender’s Mortgage Insurance (LMI) costs on your new loan.

• Get a good idea of your property value Again, if your new loan is for more than 80% of your new lender’s valuation of your home, this may trigger the need to pay Lender’s Mortgage Insurance (LMI). This additional expense could negate any benefits of a lower interest rate. Before switching, inquire about the possibility of a partial LMI refund from your current loan to offset this cost. A trusted mortgage broker can help you with this.

• Speak with a mortgage broker about your old - and new - loan An experienced mortgage broker will likely know which lenders are likely to value your home most highly (as this varies quite a lot). They can also assist you with negotiations between your current - and new lenders. A good mortgage broker can often get some application fees and setup costs waived. They may also have access to faster processing times and other special offers that aren’t available to regular home loan applicants.

What are the costs of refinancing?

While refinancing can save you money in the long run, it’s important to consider the costs involved, such as:

• Exit fees: These can be significant if you're ending a fixed-rate loan early. Check with your mortgage broker first.

• New loan application fees: Some lenders charge setup costs for processing your new loan.

• Home valuation fee: Some lenders require a valuation of your property.

• Discharge fee: A fee for closing your current loan.

• Application fee: The upfront fee for applying for a new loan.

• Switching fee: If you're switching to a different product with the same lender.

• Stamp duty: In some cases, stamp duty may apply when refinancing. Check with your lender.

Refinancing could still be worthwhile if the long-term savings outweigh these upfront costs.

How much can you save by refinancing?

Once you’ve shortlisted potential loans and understand all the associated fees, use our mortgage switching calculator to evaluate your overall savings from refinancing. 

This tool can also help you determine how long it will take you to recoup any costs incurred by your refinance.

Case Study Example: James and Rebecca’s Refinancing Decision

James and Rebecca’s fixed-rate period is ending in a few months, which means a significant increase in their home loan interest rate. To avoid higher repayments, they are looking to refinance with another lender.

Their mortgage broker identifies two suitable loan products:

• Home loan A: Offers a lower interest rate, but has an application fee of $600.

• Home loan B: Has a slightly higher interest rate, but a lower application fee of $300.

Although Home loan A has a higher upfront cost, the reduced interest rate provides substantial long-term savings. After careful consideration, James and Rebecca choose Home loan A, as the lower interest rate outweighs the initial application fee.

By refinancing, James and Rebecca will save $84,040 over the life of their new 25-year loan, equating to $280 in monthly savings. 

The switching costs will be recovered within just five months, making this a financially sound decision for their long-term home ownership strategy.

Frequently Asked Questions

Is refinancing easier than getting a mortgage?

In most circumstances, yes. This is because when you refinance your home loan, you've already purchased your property. Your lender has most of your relevant financial information, and they have a record of your repayments.

Will I have to pay lenders mortgage insurance (LMI)?

Your new bank will have your property valued as part of your refinance application process. If your current loan is more than 80% of the value of your property, your new lender may require you to take out lenders mortgage insurance.

This can be a sticking point for some homeowners and is definitely something to discuss with your broker. Make sure you understand the financial implications of refinancing before making the switch.

How does a mortgage broker help me refinance my home loan?

Working with a mortgage broker can simplify your refinancing process significantly. Brokers have access to a wide array of lenders and loan products, many of which may not be available to individual customers directly. 

A broker can compare the costs of refinancing your home loan against your potential savings, present you with your best-fit refinance home loan options, and handle the paperwork on your behalf. Working with a mortgage broker is a huge time saver.

Moreover, some lenders have introduced ‘fast-track’ refinancing programs that streamline your application process, making it quicker and easier for homeowners to switch loans. A mortgage broker will be able to identify which lenders offer these programs and determine if you qualify for faster refinancing.

Sources:

HSBC: What is refinancing?

Westpac: Costs of refinancing

Anthony Stevenson, is the head of home loans at Compare Club. With over a decade of experience under his belt, Anthony is dedicated to helping individuals make informed decisions when choosing a home loan. Whether it's finding a great deal on your home loan or refinancing, Anthony has a wealth of knowledge in the space.

Meet our home loans expert, Anthony Stevenson

Anthony's top home loans tips

• 1

  Refinancing is the smartest, fastest way to lower your repayments and give yourself some breathing room.

• 2

  There’s more to a good value home loan than just interest rates. Are you paying high account keeping fees, or being charged for making extra repayments?

• 3

  Pre-approval and unconditional approval of your home loan are different parts of the same process. Our expert brokers cut through the jargon for you.

• 4

  Home loan pre-approval is not compulsory. It’s possible to begin your home loan application after you’ve found the home you want to buy.