How to Refinance Your Home Loan (Step-by-Step)

To refinance your home loan, you apply for a new mortgage with a different lender (or sometimes the same lender), and the new loan pays out your existing one. The whole process usually takes 4-8 weeks. On a $500,000 loan, reducing your rate by just 0.50% saves roughly $2,500 per year, making refinancing one of the highest-return financial moves available to most Australians.

When Does Refinancing Make Sense?

Refinancing is worthwhile when the savings outweigh the costs. As a rule of thumb:

• Rate gap of 0.25% or more: You'll likely save enough to cover costs within the first year
• Variable rate loan: No break costs, making the switch straightforward
• LVR below 80%: You avoid paying Lender's Mortgage Insurance on the new loan
• Fixed rate period has ended: Your loan has reverted to a (usually higher) variable rate

Step 1: Check Your Current Loan

Before you do anything else, find out exactly what you're paying. Log into your lender's app or call them to confirm:

• Your current interest rate (not the original rate, the rate you're actually paying now)
• Your remaining loan balance
• Any fixed rate period remaining and potential break costs
• Discharge fees to exit

Step 2: Calculate the Savings

Use this quick formula:

Monthly saving = (Loan Balance x Rate Difference) / 12

Example: $500,000 loan, current rate 6.50%, new rate 6.00%

• Rate difference: 0.50%
• Annual saving: $500,000 x 0.005 = $2,500
• Monthly saving: ~$208

Compare this against the one-off refinancing costs (typically $300-$1,000 for variable loans). In this example, the refinance pays for itself in under 5 months.

Step 3: Shop for Rates

Compare at least 3-5 lenders. Don't just look at the headline rate - check the comparison rate, which includes most fees. Our Best Home Loan Rates guide shows current rates.

When comparing, consider:

• Comparison rate (the true cost including fees)
• Offset account availability (and any fees charged for it)
• Redraw facility (access to extra repayments)
• Extra repayment limits (some fixed loans cap these)
• Ongoing fees (monthly/annual account fees)

Step 4: Get Conditional Approval

Once you've identified a lender, apply for conditional (or pre-) approval. This involves a credit check and basic assessment of your financial situation. The lender will give you an indicative approval subject to a full valuation and assessment.

Documents you'll typically need:

• Last 2 payslips or evidence of income
• Last 2 years tax returns (if self-employed)
• Recent bank statements (3-6 months)
• Current loan statement
• ID (driver's licence, passport)

Step 5: Property Valuation

The new lender will order a property valuation to confirm the security value. This determines your LVR with the new lender. If your property has decreased in value, it might push your LVR above 80%, potentially requiring LMI or voiding the approval.

Most lender valuations are done digitally or via drive-by and don't require you to be home.

Step 6: Formal Approval and Loan Offer

Once the valuation is satisfactory, the lender issues a formal approval and loan contract. Read the contract carefully. Confirm:

• The interest rate matches what was quoted
• The fee schedule is as expected
• The loan features (offset, redraw) are included
• The repayment schedule is correct

Step 7: Settlement

Your new lender coordinates with your old lender to pay out the existing loan. This is handled by the lenders' solicitors/conveyancers. On settlement day:

• Your old loan is paid out and closed
• The new loan begins
• Your property title transfers security to the new lender

You don't need to attend settlement. It's done electronically.

Step 8: Post-Settlement Setup

After settlement:

• Set up your offset account and direct your salary into it
• Arrange automatic repayments
• Cancel any automatic payments to your old lender
• Update any direct debits linked to your old account

Costs to Budget For

The Counter-Offer Trap

When you notify your current bank that you're refinancing, their retention team will almost certainly call with a counter-offer. This is worth considering, but be careful:

• Get the counter-offer in writing before withdrawing your refinance application
• Compare the total package, not just the rate (does your current bank offer offset? What are their fees?)
• Be aware of "loyalty discount" structures that can be removed later

Your strongest negotiating position is while you hold a formal approval from a competing lender.

Making the Switch: Is It Worth the Effort?

Refinancing is one of the most straightforward ways to save money on your mortgage. If your current rate is more than 0.25% above the best available, the savings will almost certainly exceed the costs. The process takes 4-8 weeks and can be done entirely online with most lenders.

Start by checking your current rate, compare it against our home loan rate tables, and if the gap is significant, begin tracking your options.

Consider Using a Mortgage Broker

A mortgage broker can compare offers from multiple lenders on your behalf and handle much of the paperwork. They are paid by the lender (not you) and can sometimes access rates not advertised to the public. ASIC's MoneySmart recommends shopping around with at least 2-3 lenders or brokers before committing.

Watch Out: The Loan Term Reset

When you refinance, most lenders will offer a new 25 or 30-year loan term. If you have been paying down your current loan for several years, resetting to a 30-year term means paying significantly more interest over the life of the loan - even if the rate is lower. Ask your new lender to match the remaining term of your existing loan (e.g., 22 years remaining instead of 30).