With the cash rate sitting at an 11-year high and many people rolling off record-low fixed rates to significantly higher variable rates, it’s no surprise that Australians are refinancing their home loans in unprecedented numbers.

According to the latest figures from the Australian Bureau of Statistics, although the total value of external refinancing dipped slightly by 3.1% in June 2023, it was still 12.6% higher than a year previously.

In this article, we look at what refinancing is, the advantages and possible disadvantages of doing so, and the steps involved. So, if you’re thinking about refinancing your home loan, read on!

What is refinancing a home loan?

Refinancing is when you pay out your current home loan with a new one in order to secure a better deal. You can do this with your existing lender or a different one. It’s possible to save thousands over the life of your loan this way. However, there are circumstances where refinancing could end up costing you more than it saves, which is why it’s crucial to understand the process and the variables involved.

Why refinance your home loan?

There are many reasons to refinance your home loan. Securing a better interest rate is perhaps the most obvious, but you might be looking for extra features from your home loan product, or simply wanting to free up some cash.

Here are some of the main reasons for refinancing a home loan:

• Secure a better interest rate and lower repayments.
• Avoid monthly or annual fees (if applicable to your current loan).
• Acquire new loan features such as redraw, an offset facility, or the ability to make unlimited extra repayments without penalty.
• Switch to a financial institution with better customer service.
• To access equity to fund things like renovations, debt consolidation, or a new car purchase.

When is it not a good idea to refinance your home loan?

It’s a sensible move to consider the potential downsides of refinancing before taking the plunge. While the prospect of lower repayments can be tempting, there may be other factors which mean your new deal isn’t quite the money-saver it initially appears to be.

Here are some things to be aware of:

Costs outweighing savings

If there are significant costs to refinancing your home loan, it could take some time for your reduced repayments to represent an actual savings benefit. This is especially worth bearing in mind if you’re planning on selling any time soon.

Increased loan term costing more in the long run

If you’re a fair way into your current loan term, refinancing to a new 30-year deal might end up costing you more in the long run. While your repayments might be lower, you could find yourself paying more over the life of your new loan.

Lack of features

Once again, low rates can be attractive but don’t let them overshadow the flexibility offered by additional loan features. For example, an offset facility or the ability to make unlimited extra repayments could help you pay down your loan faster than simply securing a better interest rate. Similarly, a home loan with free redraw gives you peace of mind in case of emergencies.

Your credit score

You will need to meet your lender’s credit requirements before being approved for refinancing. If your financial circumstances have changed significantly since you purchased the property, this might not necessarily be possible. And if this is the case, a failed application may further impact your credit score.

The steps to refinancing your home loan

If you’ve decided that refinancing your home loan is the right move for you, here’s a step-by-step guide to what’s involved.

Step 1 - Understand why you’re refinancing

Have a think about your reasons for wanting to refinance and which features you need and don’t need from a new home loan. As with anything, having a proper understanding of your needs and wants will help you secure the deal that’s best for you.

Step 2 - Review your current home loan

Now you need to review your existing home loan. You should ask yourself questions like:

• What’s my current interest rate?
• How long do I have left on my current loan term?
• Is my loan fixed, variable or split?
• When did I last refinance?
• Am I planning on selling any time soon?
• What ongoing or annual fees (if any) am I paying?
• How much will it cost to exit my current loan?
• Are there any features I wish my current loan had?

Knowing the answers to these questions will help guide you towards the right decision.

Step 3 - Compare home loans

When you know why you want to refinance and have a clear understanding of your current loan, you’re in a good position to see if you can grab yourself a better deal. You can do this by researching online or speaking to a broker.

See how much you could save by switching to a Great Southern Bank Home Loan with our handy refinancing calculator.

Step 4 – Speak to your current home loan provider

Once you’ve completed steps one to three, you’ll be in a strong position to speak to your current lender about your options. If you can articulate clearly what you want and demonstrate knowledge of the wider market, the onus will be on them to keep you as a customer.

Step 5 - Apply for a new home loan

If you can’t get what you want from your current lender, it’s time to exercise your rights as a consumer and apply for a new home loan elsewhere.

To apply online for a Great Southern Bank Home Loan, you’ll need the following to hand:

• Details of your income and expenses.
• Financial details, including what you own and what you owe.
• Proof of identity, such as a passport or driver licence.
• If you are applying with another person, both applicants need to be present.

Step 6 - Sign your new home loan contract

Once your refinance application has been approved, be sure to look over all documents relating to your new loan. If you’re unsure about any aspect, it’s a good idea to speak to a lawyer before signing.

If you do go ahead and sign the documents, your new lender will arrange settlement with your current lender, which is the point at which your old loan ends and your new loan begins.

Ready to refinance?

If you’re ready to get the ball rolling, you can apply for a Great Southern Bank Home Loan online or, if you prefer, speak to one of our Home Loan Specialists by calling 133 282. Alternatively, you can always pop into your nearest branch for a chat.

FAQs

How much does it cost to refinance your home loan?

If you’re moving to a new home loan provider, you may be required to pay your old one a discharge fee. Similarly, there may be early payout costs if you’re refinancing a fixed rate loan before the end of the fixed term. Additionally, there may be application and/or establishment fees with your new lender, and potentially Lenders’ Mortgage Insurance (LMI) if your loan-to-value ratio (LVR) is more than 80%.

When can you refinance your home loan?

Theoretically, you could refinance your home loan the day after it settles, but doing so within a year is almost certainly going to end up costing more than it saves (see above).

How many times can you refinance your home loan?

There’s no legal limit to how many times you can refinance a home loan. But once again, the potential costs involved could make it a bad idea to do too often.

How long does it take to refinance a home loan?

According to a report by PEXA, the average refinancer spends six weeks researching their new home loan, while the application process itself takes an average of three weeks from start to finish.

Important information

Great Southern Bank, a business name of Credit Union Australia Ltd ABN 44 087 650 959. AFSL and Australian Credit Licence 238317. Conditions, fees and charges apply. This is general information and does not take into account your objectives, financial situation or needs. Consider the appropriateness of the information, including the Terms and Conditions (T&Cs) booklet, before acting on it. The Financial Claims Scheme may apply to this product; refer to the T&Cs for more information.

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