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Home Loan Refinancing
Home Loan Refinancing
Written by
Tina Sendin
Edited by
Ellie Garran
Reviewed by
Sam HymanCompare home loans the easy way
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What is home loan refinancing?
Long story short
Refinancing can save you thousands over the life of your loan
Swapping to a lower interest rate or better-suited loan can cut years off your mortgage and save you big on interest.
Refinancing can offer flexibility for changing needs
Whether locking in certainty with a fixed rate or enjoying flexibility with variable, refinancing gives you the power to switch.
Your refinancing decision might be affected by potential costs
Up-front fees, break costs, and LMI can add up. It’s a good idea to weigh these carefully to decide if refinancing is worth doing.
Simplify your repayments by consolidating your debts
You can bundle debts like credit cards and personal loans into your mortgage with refinancing to streamline your finances.
What is home loan refinancing?
Refinancing is switching to a new home loan.
Over time, as the market changes or your financial situation shifts, the home loan that once seemed perfect might not be doing you any favours anymore. If that happens, you might decide to swap out your current home loan for a new one that better suits your needs or saves you money.
You can refinance in two ways:
External refinancing
You switch your mortgage to a different lender – often triggered by a desire for a better rate, lower fees, or more flexible features.
Internal refinancing
You stick with your current lender, but switch loan products. This can make sense when your lender suddenly has a deal you want, or you’ve outgrown your original loan’s features.
Understand how to refinance your home loan – and why it’s worth considering
Thinking about refinancing? Watch this quick explainer to understand how it works, its benefits, and potential drawbacks.
What are the benefits and potential risks of refinancing my home loan?
Too many guides talk up the savings and gloss over the trade-offs. We won’t do that. Here’s the rundown of benefits and risks to refinancing.
You can snag a lower interest rate
Interest rates can go up and down over the life of a loan. If rates have dropped since you signed up for your current mortgage, switching to one with a lower rate could be a smart move. With a lower rate, your monthly repayments will likely be less, putting extra cash in your pocket.
You can enjoy a shorter loan term
Refinancing allows you to shorten the loan term. Doing this means you’re likely to pay off the loan sooner (and be debt-free faster). Not only that, but knocking years off your loan might mean paying less interest overall. Be warned, though: A shorter loan term could mean your repayments will be slightly higher.
You can convert your mortgage
If your mortgage no longer suits your lifestyle or financial situation, you can switch between a variable- or fixed-rate home loan. Variable rates move up and down with the market – if you find that they keep increasing over time, locking in a fixed rate could save you from paying extra down the track. On the flip side, if you’re stuck with a fixed rate that’s too high because rates have dropped, it might be worth switching to a variable rate.
You can borrow for your reno project
Thinking about giving your place a facelift? You could pay for your reno project by refinancing and tapping into some cash from a home equity loan. With more financial capacity for renos, you could increase the value of your property and live in a swankier home at the same time.
You can consolidate your debt
Juggling debts like credit cards, car loans, and personal loans? With refinancing, you could bundle everything into one home loan repayment. Debt consolidation could be a great way to have better control of your finances and avoid missing repayments, but it could also mean you’re paying more interest in the long run.
You can add some loan features
When you refinance, it’s a good chance to add on useful features. For instance, an offset account is tied to your home loan and reduces the interest you’re charged. Say you’ve got $100,000 left on your loan but $20,000 sitting in an offset account. The lender only charges interest on $80,000 – meaning you could potentially save heaps over time.
Refinancing isn’t always free
You might have costs like property valuation fees, discharge fees, and application charges. If you’re switching from a fixed-rate loan, break costs could pop up, too. It’s a good idea to factor in the total cost to refinance your home loan when deciding if it’s worth doing.
You might get hit with LMI – again
If you’ve already had to pay lenders mortgage insurance (LMI), you might be hoping you’d never see these words again. But you’ll likely have to pay this up-front fee again if you have less than 20% equity in your property.
Your credit rating might take a dip
Your credit rating is another thing to keep in mind, since lenders will run a credit check every time you apply for a new loan. Fair enough, right? But here’s the catch – every credit check gets logged in your history. If you apply for too many loans in a short time – or even refinance too frequently – your credit score might drop. Shopping around is smart, but applying everywhere all at once? Not so much. It’s worth doing your homework and using tools that can line up various options for you without making your credit file look a little too eager.
You can snag a lower interest rate
Interest rates can go up and down over the life of a loan. If rates have dropped since you signed up for your current mortgage, switching to one with a lower rate could be a smart move. With a lower rate, your monthly repayments will likely be less, putting extra cash in your pocket.
You can enjoy a shorter loan term
Refinancing allows you to shorten the loan term. Doing this means you’re likely to pay off the loan sooner (and be debt-free faster). Not only that, but knocking years off your loan might mean paying less interest overall. Be warned, though: A shorter loan term could mean your repayments will be slightly higher.
You can convert your mortgage
If your mortgage no longer suits your lifestyle or financial situation, you can switch between a variable- or fixed-rate home loan. Variable rates move up and down with the market – if you find that they keep increasing over time, locking in a fixed rate could save you from paying extra down the track. On the flip side, if you’re stuck with a fixed rate that’s too high because rates have dropped, it might be worth switching to a variable rate.
You can borrow for your reno project
Thinking about giving your place a facelift? You could pay for your reno project by refinancing and tapping into some cash from a home equity loan. With more financial capacity for renos, you could increase the value of your property and live in a swankier home at the same time.
You can consolidate your debt
Juggling debts like credit cards, car loans, and personal loans? With refinancing, you could bundle everything into one home loan repayment. Debt consolidation could be a great way to have better control of your finances and avoid missing repayments, but it could also mean you’re paying more interest in the long run.
You can add some loan features
When you refinance, it’s a good chance to add on useful features. For instance, an offset account is tied to your home loan and reduces the interest you’re charged. Say you’ve got $100,000 left on your loan but $20,000 sitting in an offset account. The lender only charges interest on $80,000 – meaning you could potentially save heaps over time.
Refinancing isn’t always free
You might have costs like property valuation fees, discharge fees, and application charges. If you’re switching from a fixed-rate loan, break costs could pop up, too. It’s a good idea to factor in the total cost to refinance your home loan when deciding if it’s worth doing.
You might get hit with LMI – again
If you’ve already had to pay lenders mortgage insurance (LMI), you might be hoping you’d never see these words again. But you’ll likely have to pay this up-front fee again if you have less than 20% equity in your property.
Your credit rating might take a dip
Your credit rating is another thing to keep in mind, since lenders will run a credit check every time you apply for a new loan. Fair enough, right? But here’s the catch – every credit check gets logged in your history. If you apply for too many loans in a short time – or even refinance too frequently – your credit score might drop. Shopping around is smart, but applying everywhere all at once? Not so much. It’s worth doing your homework and using tools that can line up various options for you without making your credit file look a little too eager.
Helpful tip
While refinancing your home loan might be more effort than switching your energy provider, the potential financial reward is quite often much greater. Reducing your interest rate by even a few percentage points may not seem like much, however over the lifetime of a loan, you could end up saving thousands – or even tens of thousands – of dollars in interest. And you could not only reduce the amount interest payable but also pay off your loan much faster and be mortgage free much earlier in life.
Canna Campbell
Financial Planner & Founder of SugarMamma TV
When would I refinance my home loan?
There are a few circumstances that might prompt you to look into refinancing your mortgage.
You might consider refinancing when your current home no longer suits your needs, or when there are more competitive interest rates out there. Things can change quickly, so it makes sense to regularly assess and compare your home loan.
If you want to get some savings from a lower interest rate and take advantage of cash incentives offered by banks to refinancers, then switching home loans could be a smart move.
To avoid hairy financial situations, you’ll want to ensure that your home loan continues to align with your lifestyle and budget. For example, if your income has increased substantially, you may want to increase your monthly repayments so you can pay off your loan faster. The opposite applies if you, unfortunately, experience a loss in income.
Some people might also refinance to draw funds from their existing equity to cover large expenses, such as a new car, a holiday, renovations, or an investment property. Refinancing can also be a way to get money in a financial emergency.
But before you redraw funds from your home loan, it’s important to consider some of the potential risks that we described earlier.
How have interest rates affected home loan refinancing in Australia?
As many of us already know, Australia’s cash rate reached near-historic lows during the pandemic. Over that time, many borrowers had taken out loans at a low fixed rate that hovered around 2% to 2.5%. As the graphs show, this launched an external refinancing frenzy starting in 2020.
From May 2022 to November 2023, the Reserve Bank of Australia (RBA) hiked rates to fight inflation. And with more than half the pandemic-low fixed-rate home loans expiring in 2023 (especially in the second half of the year), borrowers scrambled to lock in better deals or break out of expiring fixed loans. This is reflected in the 2023 peak in external refinancing in both graphs across owner-occupiers and investors.
After a dip in external refinancing around the end of 2023, the refinancing wave surges on. The number and value of both external and internal refinancing keep growing, as property owners look for better rates and explore their options.
Is it worth refinancing my home loan for 1%?
Quick maths (and our home loan refinancing calculator) say yes.
On a $500,000, 25-year loan, dropping your rate by just 1% can save around $90,000 in interest over the life of the loan. It can also cut your monthly repayments by $300!1Indicative numbers from iSelect refinancing calculator, May 2025 Even after paying fees (which can set you back a few thousand dollars), the net gain could be significant.
Have a look at the bar graphs to see how much difference a drop by 1% can make in terms of:
- reduction in principal and interest repayments
- reduction in total interest over the life of the loan
- reduction in time paying off for loan.
What does the typical refinancing process look like?
Refinancing isn’t as painful as it sounds, but it’s worth knowing how it all works. Typically, the whole refinancing process can take anywhere between two days and a month – depending on whether you’ve provided all necessary paperwork, how long the lender reviews the application, how long the appraisal and underwriting take, and how seamless the loan closing is.
Here’s what the refinancing process typically looks like:
Go back to the drawing board
Before you jump into refinancing, it’s a good idea to stop and think about what you’re after. Chasing a lower interest rate? Looking to add features that might save you on interest or ditch ones you don’t use anymore? Thinking about swapping lenders? Have you explored the potential refinancing costs? It’s worth making sure refinancing lines up with your goals.
Compare your options
If you want to get a good deal, you might want to shop around a bit. At iSelect, we’ve partnered with Aussie Home Loans to make it easier for you to compare different home loans online. Aussie Home Loans works with different lenders, so there are plenty of home loan options you could consider.
Get ready to submit your application
Once you’ve picked a new home loan that suits you, you’ll need to start the application process. It’s pretty similar to the process of applying for your current home loan. Sometimes, your property might need to be re-valued by your new lender. (Your mortgage will let you know if this is required.)
Let your current lender know
If you’re switching lenders, you’ll need to let your current one know. Your new lender and your broker can tie up your existing loan for you. Once your current lender knows the settlement date, they’ll give you a final payout figure.
Pop the champagne!
Or however you prefer to celebrate your new home loan. You should receive all of the info for your new loan and make the repayments to your new lender.
Can I refinance to buy an investment property?
We’ve already mentioned how refinancing can be a way to draw funds from your equity to pay for some of life’s big expenses. It can also be a way to fund the purchase of an investment property.
Normally, when buying a home, you’d be asked to put down a deposit. If that deposit is less than 20%, you may also have to pay lenders mortgage insurance (LMI). But by refinancing your existing home, you may be able to access funds from your equity to cover the deposit for a new property.
You can also switch between an owner-occupied home loan and an investment home loan when refinancing. Interest rates associated with owner-occupied loans are usually lower, but investment property home loans can come with tax benefits.
Make a refinance home loan comparison with iSelect and Aussie Home Loans
No matter the reason you’re refinancing your home loan, comparing your options is an important step. We can help! At iSelect we’ve partnered with Aussie Home Loans to help you compare home loans from their range of providers. Compare now.
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iSelect is the trading name of iSelect Mortgages Pty Ltd (ABN 86 148 217 181). iSelect Mortgages Pty Ltd is a credit representative (Credit Representative 400540) of Lendi Group Distribution Pty Ltd (Australian Credit Licence 246786). iSelect provides a referral to Lendi Group Pty Ltd, a Credit Representative of Lendi Group Distribution Pty Ltd (Australian Credit License 246786). iSelect Mortgages Pty Ltd receives a commission from Lendi Group Distribution Pty Ltd, the licensee for each new customer account created and for each home loan submitted through this service.