Refinancing and Switching Home Loans: When and How

Refinancing means replacing your existing mortgage with a new one, either with your current lender or a different lender. You might refinance to secure a lower interest rate, access equity or consolidate debt.

Before you switch

Moneysmart recommends asking your current lender for a better deal before switching. If you have at least 20 % equity and a good credit score, you’ll have more negotiating power. Also consider the length of the new loan; extending the term could increase the total interest you pay.

Compare the costs

Refinancing can involve various fees:

• Break fee:  If you’re on a fixed rate, the lender may charge a penalty for breaking the term.

• Discharge fee:  A fee to close your current loan.

• Application and valuation fees:  Charged by the new lender.

• Lenders Mortgage Insurance:  If your LVR is above 80 %, you may need to pay LMI again.

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Moneysmart suggests using a mortgage switching calculator and getting at least two quotes. A broker can do this work, compare interest rates and fees across lenders and calculate whether the savings outweigh the costs.

Is it time to refinance?

Consider refinancing if:

• Your interest rate is significantly higher than current market rates;

• You want to access equity for renovations or investments;

• Your fixed rate is ending and you want to avoid the revert rate;

• You want more loan features, like an offset account.

  
  

Remember that refinancing resets your loan term, so check the total cost over the life of the loan. Your broker will help you weigh up different scenarios.