How to Refinance Your Home Loan: Complete Guide

Refinancing your home loan can save thousands of dollars annually through lower interest rates, better features, or improved loan structure. However, refinancing involves costs and effort that must be weighed against potential savings. This guide walks through when to refinance, how the process works, and strategies to maximize benefits.

When Should You Consider Refinancing?

Interest rate reduction: If rates have fallen 0.5%+ since you borrowed, refinancing could save significantly. Better features: Switching to a loan with offset account, redraw facility, or better repayment flexibility. Debt consolidation: Combining high-interest debts into your lower-rate mortgage. Changed circumstances: Moving from fixed to variable (or vice versa) based on rate outlook. Equity access: Borrowing against increased property value for renovations or investments.

Calculating Your Savings

Compare your current rate to available rates. A 0.5% reduction on a $400,000 loan saves approximately $2,000 annually in interest. Over the remaining loan term, this compounds to tens of thousands. However, factor in refinancing costs: application fees ($250-$600), valuation fees ($150-$300), discharge fees from current lender ($150-$500), and potential break costs if exiting a fixed rate early.

Break Costs for Fixed Loans

Exiting a fixed rate loan before the term ends typically incurs break costs (economic cost to the lender). If rates have risen since you fixed, break costs can reach $10,000-$30,000+ depending on loan size and remaining fixed term. If rates have fallen, break costs might be minimal or zero. Always check break costs before refinancing from a fixed loan—they can eliminate all savings.

The Refinancing Process

Step 1: Assess your current loan—rate, fees, features, break costs. Step 2: Research competitive offers (use a mortgage broker to compare lenders). Step 3: Apply for pre-approval with new lender. Step 4: Submit full documentation (income, assets, liabilities). Step 5: New lender orders valuation. Step 6: Formal approval issued. Step 7: Discharge current loan, settle new loan. Timeline: typically 4-6 weeks from application to settlement.

Required Documentation

Similar to your original application: ID, income verification (last 2 payslips, tax returns if self-employed), 3-6 months bank statements, liability statements (credit cards, loans), property documents, and current mortgage statement. If your income or employment has changed since your original loan, be prepared to explain and document changes. Lenders reassess your borrowing capacity at refinance.

Equity Access and Cash Out

If your property has increased in value, you may have significant equity. Refinancing allows you to access this equity (borrow more) for renovations, investments, or other purposes. Example: You bought for $500,000 with $400,000 loan. Property now worth $650,000, loan reduced to $380,000. You have $270,000 equity. Lenders may allow borrowing up to 80% ($520,000)—a potential $140,000 access.

Negotiating vs Refinancing

Before refinancing, try negotiating with your current lender. Many lenders offer rate discounts (0.2-0.5% reductions) to retain customers. This saves the time and cost of refinancing. Call your lender, mention you're considering refinancing, and ask for a rate review. If they won't budge or the discount is insufficient, proceed with refinancing. A mortgage broker can handle these negotiations.

Choosing the Right Loan

Don't just chase the lowest rate—consider loan features that suit your situation. Do you want an offset account? Redraw facility? Extra repayment flexibility? Fixed or variable? Package loans with credit cards and fee waivers? Calculate total value including features, not just the interest rate. A slightly higher rate with an offset account might save more than the cheapest rate loan without one.

Key Takeaways

Refinancing can save thousands annually and improve your loan structure, but requires weighing savings against costs. Calculate net savings (total interest saved minus refinancing costs) over the remaining loan term. If you save $2,000+ annually and plan to stay in your property for 3+ years, refinancing often makes sense. A mortgage broker can compare options across lenders, negotiate on your behalf, and handle the application process.