What is Refinancing 

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Our home loan lending specialist Adam explains what is refinancing and how it could help you. 

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Why refinance your home loan?

Refinancing your home loan might seem like a good idea, especially if there are lower interest rates available and attractive cash-back offers on the market in Australia. As time of writing in March 2022, there are currently cash-backs of up to $4,000 given by some lenders.  

With property prices growing so much in the past 12 months, a lot of home owners now have equity in their property from the value of their home rising. 

There are several ways refinancing may benefit you. Moving your loan to a new bank might mean you can:
 

• Get a lower interest rate

• Reduce your monthly repayments

• Unlock equity to fund a renovation, investment or assist cashflow

• Get an offset account or redraw facility 

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The Australian Competition and Consumer Commission (ACCC) itself has said the average borrower could save $17,000 in interest just by switching to a new loan. 

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However, refinancing does require some effort to be put in on your own behalf. The level of savings generated through refinancing depends (amongst other things) on the size of your mortgage, how many years left on the loan term and how much lower the new interest rate is compared to your current rate.

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This needs to be considered alongside the initial costs of refinancing to help you determine whether it’s worth it. These upfront costs to refinance a mortgage can vary depending on the lender and the type of refinancing.

 

Types of refinance loans

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Generally, there are two main types of home loan refinance:

• External refinance: When you move your loan to another financial lender

• Internal refinance: When you refinance your home loan with your existing lender

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Refinancing with your existing lender, for instance, might save you some of the additional fees associated with changing lenders, such as exit, valuation and application fees.

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Costs of refinancing a home loan

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Here are some of the main costs of refinancing:

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Break cost

Your lender may charge you a break cost if you leave a fixed home loan early.
 

If you currently have a fixed rate home loan and you want to refinance before the end of the fixed term, you’ll have to pay break fees. 
 

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Discharge settlement fee

You might also be charged a discharge settlement fee (aka a settlement, loan exit or termination fee) for closing your home loan.
 

Lenders charge this fee to cover the cost of admin when you exit a loan. It can apply to both variable rate and fixed rate home loans.

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The overall costs will vary depending on which institution you are currently with, which institution you are going to and which state/territory you live in.

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Our mortgage lending specialists will explain all costs associated with refinancing and put together the most cost effective strategy. 

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What are upfront costs for the new loan?

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Application fee / Establishment fee

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You may need to pay an application fee to cover the admin cost of setting up a new loan when you refinance. 

This can be between $150 - $900, with the average being $550. 

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Property valuation fee

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A new lender may need a property valuation to get an accurate picture of your equity. The cost can vary and some lenders may include the valuation in your application fee.

This can be between $50 - $420, with the average being $265

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Settlement fee

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If there are legal costs in settling a new home loan with the lender, you’ll also pay a settlement fee.

This can be between $15 - $650, with the average being $206

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Mortgage registration fee

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You’ll need to register your new mortgage with state or territory government. When you do, you will pay a mortgage registration fee, which will vary depending on location.

This can be between $100 - $385, with the average being $257

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This all comes down to the type of loan you've moved too and the loan you're moving away from. 

 

 

 

Is refinancing right for you?

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There are potential benefits as well as costs to refinancing your home loan, so it’s important to consider a number of factors before taking the next step. Our lending specialists will ensure your accessing the best refinancing loan for you, however it helps for you to do the below: 

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• Do your research before refinancing

• Check any upfront and ongoing fees

• Weigh up different home loan types

• Consider what a different loan term might mean

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