Refinancer Guide
Refinancing can cut what your mortgage costs when a better rate or loan is available. Yet many Australians stay on the same loan for years, paying what's known as the loyalty tax while their lender offers better rates to new customers. Our refinance guide has the full cost checklist and the steps to switch.
By Better Rate Mate Editorial Team · Last reviewed
1Key financial priorities
Calculate your break-even point
Refinancing has upfront costs: a discharge fee from your current lender, government fees to discharge and register mortgages, any fee the new lender charges, break costs if you're fixed, and lenders mortgage insurance if you'll borrow more than about 80% of the value. Divide the total by your monthly saving to find how many months it takes to come out ahead.
Check your current rate against the market
Moneysmart notes that variable rates on the market can differ by more than 2%, so it pays to check. Compare comparison rates for your loan amount, not just advertised rates, and include the fees.
Understand your loan-to-value ratio (LVR)
Lenders price by LVR band. If your home has risen in value or you've paid the loan down, your LVR may have dropped into a cheaper band; the new lender's valuation will confirm it.
Watch for cashback offers
A cashback is a one-off payment; a higher rate costs you every month. Compare the cashback with the extra interest over the time you'll keep the loan: on a $500,000 loan, each 0.10 percentage points of rate costs about $500 a year.
2Loan types to consider at this stage
Variable rate refinance
Most flexibleExtra repayments, an offset account and no break costs if you switch again later.
Fixed rate refinance
For certaintyLock a rate for a set term. Break costs can apply if you leave early, so fix only for as long as you're confident you'll keep the loan.
Package home loan
If you'll use the extrasBundles rate discounts and fee waivers for an annual fee, such as CommBank's and Westpac's $395 packages. It pays off only if the discount and waivers are worth more than the fee on your loan size.
3Insurance needs at this stage
- ✓Review your building and contents insurance when you refinance
- ✓Update your life insurance if your loan balance has changed significantly
- ✓Check whether you still need mortgage protection insurance
4Common mistakes to avoid
- ✗Resetting the loan to a fresh 30-year term, which lowers repayments but adds interest; Moneysmart suggests keeping a similar term
- ✗Comparing headline rates instead of comparison rates and fees
- ✗Being surprised by an LMI charge because you have less than 20% equity
- ✗Refinancing during a fixed term without getting a break cost quote first
- ✗Applying to several lenders at once instead of comparing key facts sheets first
5Tips for getting a better rate
- 1Call your current lender first: Moneysmart suggests telling it you plan to switch, because it may cut your rate to keep you
- 2If you want help comparing, use a mortgage broker; Moneysmart says brokers must act in your best interests
- 3Compare the comparison rate, not just the headline rate
- 4With 20% or more equity you avoid LMI and, as Moneysmart notes, have more to bargain with
- 5Set a reminder to review your rate every year
Common questions
When is refinancing worth it?
When the interest you'll save over the time you keep the loan is bigger than the cost of switching. Divide your total switching costs by your monthly saving to find your break-even point in months.
What does it cost to refinance?
Typically a discharge fee from your current lender, government registration fees, any valuation or settlement costs, and break costs if you're ending a fixed rate early, as NAB lists them. LMI is extra if you have less than 20% equity.
Can I refinance with less than 20% equity?
Usually, but you may have to pay lenders mortgage insurance again, which Moneysmart says can outweigh the saving. Ask your current lender whether part of your original LMI can be refunded.
