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What is refinancing?

Refinancing a home loan refers to swapping one home loan for another. Home owners often choose to refinance their mortgage in order to get a lower interest rate, which can help make their mortgage payments cheaper. Getting a lower rate from a home loan refinance may also help a mortgage holder pay off their home loan sooner.

As well as lower rates, some mortgage holders choose to refinance to get a home loan product with more flexible features, such as an offset account or redraw facility. These features can offer more options for managing your mortgage payments.

How do you find the best mortgage refinance rates?

Mortgage refinancing essentially means getting a whole new home loan, so it’s important to compare the interest rates on offer. While there's no single best mortgage refinance rate that will work for everyone, making a comprehensive comparison can help you narrow down your options to some of the best rates that may be suitable for your individual needs and financial situation.

Some of the important factors to consider when searching for the best mortgage refinance rates for you include the following:

Interest rates

While you could look at a list of lenders and go straight to the home loan with the lowest rate, it's important to note that this rate may not be available to everybody. The lowest home loan interest rates often have strict eligibility criteria attached, such as requiring you to hold extra equity in the property.

Fees

The fees you may be charged on your home loan tend to vary from one product or lender to the next, but may include any number of upfront fees, ongoing fees and discharge fees. Fees can make a big difference to a loan's overall cost, so it's important to factor them into your calculations when weighing up your refinancing options.

Comparison rate

To get a better idea of the overall cost of a loan, you might like to consider its comparison rate, which combines the interest rate and standard fees.

Extra features

Whether or not you're looking to refinance in order to access extra features, it's worth weighing up the value they could offer you. Some of the extra features you might like to consider include:

  • Extra repayments - Making additional repayments can help to lower your outstanding mortgage principal, potentially lowering your interest charges and helping you pay off your property sooner. This could include paying a lump sum onto your mortgage principal or making regular principal and interest repayments that are a bit higher than the required minimum amount.
  • Redraw facility -  It can also be handy if a home loan offers a redraw facility, which will let you take any extra repayments you’ve previously made onto your home loan back out again, putting the cash back in your bank account when you need it.
  • Offset account - An offset account is a savings or transaction account that’s linked to your mortgage. Money deposited in your offset account is included when calculating your home loan’s interest charges, which can help you pay less interest. 
    Loan term

You should also remember that your loan term will affect the total amount you'll pay in interest. A shorter loan term means you may pay more on your mortgage from month to month, but you may pay less interest in total. Likewise, a longer loan term may mean more affordable monthly repayments, but you’ll likely pay more interest on the loan in total. Keep this in mind when refinancing, because if you refinance on a longer loan term, you could end up paying more over the life of the loan.

How much will a new home loan cost you?

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Will refinance rates go up or down?

The refinance rates on offer at any one time will inevitably fluctuate over time. Whether interest rates will go up or down is influenced by the Reserve Bank of Australia's (RBA) official cash rate, that's determined in a board meeting each month (except January).

At the time of writing, the cash rate is sitting as an historically low 0.10 per cent, which has been held since November 2020. This has resulted in historically low home loan interest rates as lenders have passed on rate cuts to customers and refinancers. As the cash rate is forecast to rise by 2024, many lenders have already begun to hike the interest rates on their fixed rate home loans - particularly their longer term products. However, many lenders are still chipping away at variable rate home loans.

Forecasting of the official cash rate may give you an indication of whether refinance rates will go up or down, but this may be dependant on the product you are interested in, and which lenders opt to pass on cash rate cuts or hikes to refinancers.

You can learn more about the cash rate by visiting our cash rate hub.

Should you refinance your mortgage when interest rates drop?

When interest rates drop, it may be tempting to jump straight into the refinancing process to access a lower rate. And while it is important to keep an eye on rate cuts and make regular comparisons, whether it's the right time for you to refinance is dependant on a number of factors.

First, if your current home loan is on a fixed interest rate instead of a variable interest rate, you'll need to consider whether the fixed period has come to an end. If it hasn't and you move ahead with refinancing, you may be stung with hefty break fees.

Next, you'll need to do your calculations to ensure you will be getting a better deal. Weigh up any potential savings you might make on a new loan with any costs you may incur such as exit fees for your existing loan and application fees for your new loan.

Finally, it's important to consider your remaining loan amount and loan to value ratio (LVR). If your LVR isn't 80 per cent or less, you could have to pay lenders mortgage insurance (LMI) again if you switch home loans.

It's also important to ensure the loan term remains the same, as refinancing to a longer loan term could mean more affordable repayments, but you would likely end up paying more in interest charges over the life of the loan.

Once you've compared your options and found a competitive product that fits your needs, you could first consider approaching your current lender to see if you can negotiate a better interest rate before moving forward on a new home loan application with a new lender.

Can you refinance a fixed rate mortgage?

While you technically may be able to refinance a fixed rate mortgage, if you do so before the end of the fixed term you will be breaking the contract, and will therefore typically be charged certain fees by the lender to compensate for any loss they incur. This could mean that you may end up paying more in fees for refinancing than you'd save on interest charges - making refinancing less valuable.

Are refinance rates the same as mortgage rates?

Australian banks and other financial institutions regularly incentivise home owners by offering lower home loan refinance rates that aren't available to new/first home buyers and existing customers. Which means you'll often be able to find refinance rates that are lower than mortgage rates. 

Additionally, some lenders will have special deals such as cashback offers when you refinance with them. While this may sweeten the deal, make sure you do your calculations to ensure it offers genuine value.

How do you compare refinance mortgage rates?

Finding the most suitable refinancing home loan options might seem overwhelming when there is such a wide range of factors to consider, but RateCity's home loan comparison tools can help you compare apples with apples:

Comparison tables

Our home loan refinance comparison table can help you narrow down your search to the products that best suit your specific needs. Simply use the filters to search by interest rate type, borrow amount, lender type, features, repayment options, loan type and more.

Real Time Ratings™

RateCity's Real Time Ratings™ can be a helpful tool when comparing how much value a home loan product might offer you. The rating system gives each home loan a score out of five stars, based on loan costs and flexibility. It also factors in your loan size, deposit amount and borrowing type - such as if you are looking for a loan as an owner occupier or for an investment property.

Home loan calculators

Our home loan repayment calculator can give you an estimate of how much your mortgage repayments might cost based on the information you provide.

You can find out your estimated weekly, fortnightly, or monthly repayments, total interest payable, total amount payable, plus your repayment schedule.

RateCity also has a number of other calculators that may come in handy at different stages of your home buying process, including a home loan refinance calculator.

Credit score hub

Low rate home loans are often reserved for the most desirable customers, such as those with the highest credit ratings. Before you move forward with the refinancing process, it might be worth visiting RateCity's credit score hub for a free credit score check (this will not affect your credit scores).

If your credit score has room to improve, you might like to consider working towards building it up before refinancing.

Compare refinance rates from a wide variety of lenders

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How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.