How to refinance your home loan

What does refinancing a home loan actually mean?

Refinancing is simply replacing your current home loan with a new one, either at a different lender or on a different product with your existing lender. The property and the debt stay the same; what changes is the rate, the features, or the term. Most people refinance for one of three reasons: to move to a sharper interest rate, to unlock features like an offset account or the ability to make extra repayments, or to access equity they have built up.

It is one of the most common money moves a homeowner can make, and on a large loan even a small rate difference compounds into a meaningful figure over the years. The catch is that a lower advertised rate is only worth it after the switching costs are counted, which is where most of the decision really sits.

When is it worth refinancing?

Refinancing tends to be worth a serious look when any of these are true: you have not checked your rate in more than a year, your fixed term is about to expire and roll to a higher revert rate, you are paying a lender's standard variable rate rather than a sharp package rate, your circumstances have changed and you now want features like an offset, or you have built enough equity to drop lender's mortgage insurance and access a lower loan to value tier.

The single clearest trigger is a gap between your current rate and the sharpest rates in the market. Because lenders rarely call to tell you when a cheaper rate appears, the onus is on you to check. Comparing across the wider market, not just your own bank, is the only way to see whether that gap exists.

A rule of thumb: if your current rate is more than about half a percent above the sharpest comparable rates available to your situation, it is worth running the numbers on a switch.

How do you refinance, step by step?

The process is more straightforward than most people expect, and it usually runs in this order:

How much can refinancing actually save you?

The honest figure is the gap between your current rate and a sharper one, applied to your balance over your remaining term, minus every switching cost. On a typical loan a rate improvement of half a percent to one percent can translate into a real annual saving, but the exact number depends entirely on your balance, term, and the costs involved. The way to get a grounded answer is to put your own numbers into a refinance savings calculator rather than compare two headline rates.

Ratesniffers compares owner-occupier and investor rates across the 85+ lenders it tracks, so you can see where your rate sits against the sharper end of the market before you commit to anything.

What can go wrong, and what should you watch?

The two traps that catch people are switching costs and the loan term. Discharge fees, a new application or valuation fee, government registration charges, and fixed-rate break costs all eat into the saving, so the real test is the break-even point: divide the total costs by the monthly saving to see how many months it takes for the switch to pay for itself. If you plan to sell or move before then, the lower rate may never catch up.

The second trap is resetting the loan to a fresh 30-year term. A lower rate over a longer term can still lift the total interest you pay, even though the monthly repayment drops. The fix is simple: keep your repayment at the old amount, or set the new loan to the years you had left, so the sharper rate shortens the loan instead of just lowering the monthly figure.

How long does refinancing take?

From application to settlement, a refinance typically takes two to four weeks, though it can be faster or slower depending on the lender's processing times, how quickly the valuation is completed, and how complete your paperwork is. Having your last few payslips, recent statements, and details of your current loan ready up front is the single biggest thing that speeds it along.

This information is general only and does not take into account your objectives, financial situation or needs. Consider whether it is appropriate for you before acting on it.

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• Refinance home loans
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• RBA cash rate tracker
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