Refinancing simply means replacing your current home loan with a new one, either with a different lender or with a new product at your existing lender. Done well, it can reduce your repayments, give you better features or help you reach a goal such as renovating or consolidating debt. Done hastily, it can cost more than it saves. This checklist helps you work out whether switching makes sense and how to do it smoothly.
When is refinancing worth it?
People refinance for many reasons. The most common include:
- A sharper rate. Lenders often offer their best pricing to new customers, so long-standing borrowers can end up paying more than they need to.
- Your fixed rate is ending. When a fixed term expires, your loan usually rolls onto a variable rate that may not be competitive.
- Better features. An offset account, redraw facility or the ability to split between fixed and variable can suit you better as life changes.
- Accessing equity. If your property has grown in value, you may be able to borrow against that equity to renovate, invest or buy your next home.
- Consolidating debts. Rolling higher-interest debts into your home loan can lower monthly repayments, although it can mean paying more interest over the long run unless you repay the extra amount quickly.
- A change in circumstances. Separation, a new job or a move to self-employment can all make a different lender a better fit.
A simple test: compare the total cost of switching with what you expect to save over the next few years. If you would recover the costs quickly and the new loan suits your plans, refinancing is worth a serious look. Our calculators can help you run the numbers.
First, ask your current lender
Before you move, it is worth asking your existing lender for a rate review. Some lenders will reduce your rate to keep your business, which can save you the effort and cost of switching. Even if they do, it is still wise to compare their offer against the wider market to make sure it is genuinely competitive. We are happy to do that comparison for you.
The costs of switching
Refinancing is rarely free, so factor in the following:
| Cost | What it is | When it applies |
|---|---|---|
| Break costs | A fee to compensate the lender for ending a fixed rate early | Fixed-rate loans only; can be significant when rates have fallen |
| Discharge fee | An administration fee for closing your current loan | Most lenders charge one |
| Government registration fees | Fees to remove the old mortgage and register the new one on the title | Almost every refinance to a new lender |
| Application or establishment fee | Upfront fee charged by some new lenders | Varies; many lenders charge none |
| Valuation fee | Cost of valuing your property | Often covered by the lender, but not always |
| Lenders mortgage insurance | Insurance premium if you borrow more than 80% of the property value | If your equity is low; a previous LMI premium usually does not transfer |
A closer look at break costs
If you are on a fixed rate, breaking it early can be expensive, particularly when market rates have dropped since you fixed. Ask your lender for a written estimate of the break cost before making any decision. Sometimes the smartest move is to wait until the fixed term ends, then refinance.
Cash-back offers: read the fine print
Cash-back deals, where a lender pays you a lump sum for refinancing, can be tempting. They are not necessarily bad, but they deserve a careful look:
- A loan with a cash-back may carry a higher interest rate than a comparable loan without one, which can outweigh the bonus over time.
- There are usually conditions, such as a minimum loan size, a maximum loan-to-value ratio or settling by a certain date.
- Some offers require you to stay with the lender for a minimum period.
- Offers change often and may be withdrawn at short notice.
The right question is not “how big is the cash-back?” but “which loan costs me the least over the time I expect to have it, and suits the way I want to use it?”
The refinancing checklist
- Get your current loan details. Note your balance, rate, loan type, remaining fixed term and any features you use.
- Clarify your goal. Lower repayments, access to equity, an offset account or debt consolidation? Your goal shapes the right loan.
- Estimate your property value. Your equity affects the rates and options available and whether LMI applies.
- Request break cost and discharge estimates from your current lender.
- Check your credit file and debts. Tidy up anything that could slow an application.
- Compare the market. Look at rates, fees, features and lender policy, not just the headline rate.
- Apply with your chosen lender. Provide complete documents to avoid delays.
- Valuation and approval. The new lender values the property and issues approval and loan documents.
- Sign and return documents. Your new lender arranges discharge of the old loan with your current lender.
- Settlement and set-up. Update direct debits, set up your offset account and confirm your first repayment date.
From application to settlement, a straightforward refinance can often be completed within a few weeks, though timeframes depend on the lenders involved.
Documents to have ready
- Photo ID for each borrower
- Recent payslips, or tax returns and financials if you are self-employed
- Recent home loan statements showing your repayment history
- Statements for other debts, such as credit cards and car loans
- Council rates notice and building insurance details
- Rental statements or leases if the property is an investment
When refinancing may not suit you
Switching is not always the right move. It may not suit you if break costs are high, your loan balance is small so savings are modest, you plan to sell soon, or your income has changed in a way that could make approval harder. In some cases, a rate negotiation with your current lender or simply restructuring your existing loan achieves most of the benefit with less effort.
It is also worth thinking about timing. If you are about to change jobs, start a business or take parental leave, applying before the change (while your income is easy to verify) can make approval simpler. On the other hand, if you have just started a new role and are still on probation, waiting a few months may open up more lenders. We can help you weigh up whether now is the right moment or whether a short wait would put you in a stronger position.
Want a second opinion?
We regularly review loans for clients and can tell you whether switching is likely to be worth it once all costs are counted. Find out more on our refinancing page, or book a free chat and we will compare your current loan with options from our panel of lenders.
Quick answers
How often should I review my home loan?
A good habit is to review your loan at least once a year, and whenever your fixed rate is about to end, your circumstances change or rates move noticeably. Lenders often reserve their sharpest pricing for new customers, so a regular review helps you avoid paying more than necessary. We keep in touch with clients to check their loan still fits.
Will I have to pay lenders mortgage insurance again if I refinance?
Possibly. LMI is tied to the lender that insured the loan and generally does not transfer. If you owe more than 80% of your property value when you refinance, the new lender may charge a new LMI premium. If your property has grown in value or you have paid down the loan, you may be under that threshold and avoid it.
Is a cash-back offer a good reason to refinance?
On its own, rarely. A cash-back can help cover switching costs, but it is only one part of the picture. A higher interest rate, ongoing fees or missing features can cost more than the bonus over a few years. It is better to compare the total cost of each loan over the period you expect to keep it and choose on that basis.