How do I refinance my mortgage?

Father with child on his lack considering refinancing his home loan

Just because you take out a mortgage with a particular lender, it doesn’t mean you have to commit to the company for the entire duration of your loan. 

By refinancing your home loan, you move your mortgage across to a new lender that may offer more competitive rates and features saving you lots of money in the long run.

If you are thinking about refinancing your current home loan here are some things to keep in mind:

Applying to refinance your loan is much the same as the first time you applied

When it comes to refinancing your home loan, you won’t find any new surprises. Typically you’ll need to complete an application, have a proof of a deposit, recent bank statements and proof of income. However, if those things have changed since you applied for the loan it could affect your chances for approval (for better or worse).

“A common misconception people face when refinancing is assuming that, since they qualified for the home loan in the first instance, they’ll automatically qualify again,” says Scott McWilliam, chief executive of homeloans.com.au.

Benefits of refinancing your home loan

You may potentially cut down hundreds of dollars from your monthly repayments if you refinance your loan with a lower interest rate. This is extra money you will have in your pockets or extra money to pay off your mortgage quicker. 

Home lenders have found the need to lower their rates to be more competitive due to recent low interest rates. So if you haven’t refinanced recently, chances are that your current rate hasn’t kept pace with the best loan options available in the market.

Since June 2019, the Reserve Bank has cut interest rates several times, and as the graph below shows, most lenders have followed suit.

To fix or not to fix? What variable rate should I choose?

With an endless sea of possible low interest rates, you might consider getting a fixed rate to lock that low number for a couple of years. But is this the right decision?

“You won’t be able to take advantage of any surprise rate cuts over the fixed period, nor can you switch to a different lender who’s offering a better deal,” says McWilliam. 

“You also need to consider that after the fixed-rate period, the loan will revert to a variable rate, which may end up being higher than if you had chosen a variable rate to begin with.”

If you try to change lenders or sell your house while on a fixed rate, you typically are liable for hefty end-of-contract fees which can be in the thousands, he adds.

Depending on your current rate and size of your loan, you potentially could save hundreds of dollars monthly or even be able to fully own your home quicker.

For example, the table below shows the difference between monthly repayments between rates of 2.50% and 3.50%. These figures assume that you are making principal and interest repayments over a 20 year term and don’t take into account potential lender fees.

2.50%3.50%Difference
$200,000$1,060/month$1,160/month$100
$300,000$1,590/month$1,740/month$150
$400,000$2,120/month$2,320/month$200
$500,000$2,650/month$2,900/month$250
$600,000
$3,179/month$3,480/month$301

Should I negotiate my home loan with my current lender?

It is always worth renegotiating your loan with your current lender, but if your lender isn’t willing to lower your interest rate then move on to a new one. Much like shoes, lenders are easily replaceable and there are plenty of options in the market. 

Most lenders know how competitive the market is and you can use that to your advantage and get a better deal than your previous lender.

What should I consider when refinancing my mortgage?

One of the major factors to consider when refinancing is your loan-to-value ratio (LVR) and your debt-to-income ratio. The size of your LVR equals the amount of debt you may have. The higher the LVR the more likely you are to have quite a bit of debt and lenders take this into consideration. 

“Some lenders have extra criteria when determining your creditworthiness, so even if their online calculator tells you that you can afford to refinance, they may not approve your loan if they determine that your debt-to-income ratio is too high,” says McWilliam.

RELATED: Why LVR could be your best bargaining chip

Keep in mind that lenders typically are aware that you have debt, especially if you are refinancing. McWilliam says that by declaring all the debt you have (no matter how small it may be) and being upfront about it, the more likely you are to be considered for the loan. If you show continual proof that your income can handle your debt and live comfortably, it will show the lender that you are trustworthy financially and a good candidate for them.

Also, by having a lower LVR, you improve your chances of being offered a lower interest rate by the lender. So it is in your best interest to take a good look at your debts and see how you may reduce them.

Ready to see how much money you can put back in your wallet? Head to Mozo’s refinance home loan page to compare the latest rates from a wide range of lenders.


Refinance your home loan - last updated 22 January 2022

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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