Refinance Home Loan

Refinancing involves taking out a new mortgage to replace your current mortgage, often allowing you to renegotiate the terms of the loan. With an increasing refinancing trend across Australia, now is the best time to get up to date with the latest information!

What is Refinance?

Refinancing means replacing your existing home loan with a new one, either with the same lender or a different one. 

Refinancing can help you take advantage of additional features and lower interest rates. It can also allow you to adjust the terms of your loan to better suit your needs, such as extending the term or moving from a fixed rate to an adjustable rate.

Why Should You Refinance Your Mortgage?

It’s often a good idea to consider refinancing your home loan if your original circumstances have changed. Some of the reasons why you might decide to refinance your home loan include:

• Securing a lower interest rate, this could help you pay off your loan sooner and save on the total interest paid.
• Adding extra features such as an offset account, the ability to make extra. repayments or change the repayment frequency.
• Changing from a variable rate to a fixed rate or vice versa, especially if you’re coming to the end of a fixed rate term.
• Consolidating debts.
• Taking advantage of the equity in the home to renovate or invest in another property.

Head over to our guide on when to refinance your home loan for more information on the best time to considering switching your mortgage.

How Much Can I Save by Refinancing

You will need to factor in break costs and admin fees as well as your current mortgage repayments and interest rate in order to calculate how much you could save. A refinance calculator is a great tool to use for this.

For example, Ray currently has a home loan with a balance of $500,000 and a 20 year term. His existing interest rate is 5% p.a. and he has no offset account or redraw facility. He makes monthly repayments of $3,300. 

If he switches to a home loan that offers him an interest rate of 4.5% p.a., his new monthly repayment would be $3,170, assuming that the term remains the same. 

If his exit fees add up to $1000, he wouldn’t begin to see the benefits of this switch until after the first 8 months. However, if the interest rate remained the same over the lifetime of the loan, he would save over $30,000.

How Does Refinancing Work?

Refinancing is usually a simpler process than taking out the initial mortgage, but it also depends on the type of refinancing. There are three main types of mortgage refinancing that you can apply for:

1. Rate-and-Term Refinance Loan

This is the most common type, usually done to change the interest rate or loan term. This type of home loan refinance is also sometimes used to convert the loan from a variable rate to a fixed rate.

2. Cash-Out Refinance Loan

A cash-out refinance loan is where you take out a loan larger than your existing loan by leveraging the equity you have in your property. You would then be able to withdraw the difference in cash to spend however you choose.

3. Cash-In Refinance Loan

You would normally only choose this type of refinance if you’ve just gained access to a large amount of cash and you want to use it to reduce your overall mortgage balance. This can be useful in circumstances where you’re behind on your mortgage repayments or you want to lower your credit rating.

Is it Easy to Refinance a Home Loan?

Refinancing your home loan is often less complicated than taking out the initial mortgage, but will still take 30-45 days depending on your situation. Refinancing can be easy if you prepare all the necessary documents and communicate effectively with your lender or financial institution.

For more information, check out our 8-step guide on how to refinance your home loan.

Pros and Cons of Refinancing Home Loan

Before you make the decision to refinance, it’s important to consider the potential benefits and drawbacks. Refinancing can be a great move if the timing is right, but you could also end up paying more than you’d planned.

Pros

• A lower interest rate: One of the main reasons that people choose to refinance is because interest rates have taken a dive, making it a good time to renegotiate.
• You could pay off your loan faster: If you’re able to afford a higher monthly repayment, you could shorten the term of your loan, which has the side benefit of reducing your interest repayments overall.
• You can leverage the equity you’ve built up:  If you take out a cash-out refinance loan, you could use this money to renovate, start a business or pursue further education.
• Change a variable interest rate loan to a fixed rate loan:  If the fluctuations of the interest rate on your mortgage are making it difficult to budget, you may want to consider switching to a fixed rate home loan.
• Get more mortgage features: Refinancing can sometimes allow you to add features to your loan, such as an offset account or redraw facility.
• Fast Refinance: If eligible, some lenders may offer a fast-tracked process to refinance your home loan.
• Loan cashback: Banks provide cashback offers when refinancing, allowing you to get an injection of money into your finances. 

Cons

• Refinancing fees: There can be a number of refinancing costs associated with switching home loans, including mortgage application fees, break costs, valuation fees, discharge fees, settlement fees, registration fees and exit fees.
• Lenders Mortgage Insurance:  If your Loan to Value Ratio is not at least 80%, you may have to pay LMI, even if you already paid it when you took out the initial mortgage.
• The application takes time and effort: Preparing all the necessary paperwork for refinancing can be time-consuming and the process can be affected by a change in your credit score or income. For more information, check out our refinancing timeline explainer.
• A low appraisal: Lenders will usually require that your house be re-appraised, so it’s best to consider refinancing when your local market is experiencing higher property values, to reduce the risk of a low ball appraisal.

Is it Worth Refinancing Your Home Loan?

Refinancing can be a good financial tool for reducing your mortgage payment, shortening the term of your loan or bringing debt under control. 

However, you should carefully assess how much money you’ll save by refinancing and also think about how long you plan to live in the house. If you don’t play to stay for long, the cost of refinancing may not be worth the long-term savings. There are a range of considerations that you will have to take into account, especially when considering alternative types of home loans. For instance, a SMSF loan refinance can differ from your standard process.

Refinance with Joust for Competitive Home Loan Rates

Joust allows you to put your mortgage on the market using the Live Auction feature, so that banks and lenders can bid for your home loan. This helps you get the best possible deal without using a mortgage broker because lenders will be encouraged to offer low interest rates to entice you to select them as the winner.