Refinancing 101: Could You Be Saving More?
Refinancing your home loan means replacing your existing mortgage with a new one, either with your current lender or a different institution.
Why Australians Refinance
1. Securing Lower Interest Rates: Even a small rate reduction translates to massive savings. On a $500,000 loan over 30 years, dropping from 6.5% to 6.0% saves $162/month or $58,404 total.
2. Accessing Better Loan Features: Offset accounts, unlimited extra repayments, redraw facilities, and split loan options.
3. Debt Consolidation: Consolidate high-interest debts into your home loan at a lower rate.
4. Accessing Equity: Most lenders allow borrowing up to 80% of property value. On an $800,000 property with a $400,000 loan, you could access up to $240,000.
5. Removing LMI: Once your LVR drops below 80%, refinancing removes LMI from future borrowing.
Costs of Refinancing
Typical total costs range from $1,500 to $3,000 (excluding break costs on fixed loans).
Break-Even Formula: Break-even months = Total costs ÷ Monthly savings. If you can break even within 12-18 months, refinancing is generally worthwhile.
The Refinancing Process
1. Review current situation — rate, fees, features, property value
2. Research and compare options
3. Get pre-approval (3-5 days)
4. Property valuation
5. Formal approval and contract review
6. Notify current lender and get payout figure
7. Settlement — new lender pays out old loan
8. Set up new loan with direct debit and offset account
Maximizing Benefits
- Maintain previous repayment amount even after rate drops to pay loan off faster
- Maximize offset account balances
- Review your loan annually
- Avoid lifestyle inflation — direct savings toward extra repayments or investments