Should I Refinance My Home Loan?

The Three Minute Refinance Check

Before you go any further, do this quick math. It tells you whether refinancing is worth the effort.

1. Find your current rate. It is on your most recent loan statement or internet banking.
2. Compare against the panel low. The sharpest owner occupier variable P&I rate on Lendera's panel is 5.69%. Subtract that from your current rate to get your gap in basis points.
3. Interpret the gap.
   • Under 20bp: you already have an excellent rate, refinancing probably does not pay off.
   • 20 to 40bp: marginal. Worth checking at your next loan review but not urgent.
   • 40 to 70bp: refinancing is likely to save you money over the life of the loan.
   • Over 70bp: refinancing almost certainly pays off. Start comparing now.

This check uses owner occupier P&I variable as the benchmark. If you are an investor or on interest only, adjust using the lower benchmarks: investor P&I lowest is 5.94%, investor IO lowest is 5.99%, owner occupier IO lowest is 5.94%.

What You Can Actually Save

The table below shows approximate monthly and annual savings from dropping your rate, on a standard 30 year principal and interest loan.

Over a 30 year loan term, a 0.50% rate cut on a $600,000 loan saves roughly $71,000 in total interest. That is serious money, and most Australian households who have not refinanced in 2 or more years are sitting on at least that much in recoverable interest. Try the refinance savings calculator for your exact numbers.

Refinancing Costs You Need To Know

Refinancing is not free. Build a complete cost picture so you know the true break even.

Excluding fixed rate break costs, total refinancing costs typically land between $500 and $1,500. On a $600,000 loan moving from 6.25% to 5.69%, you break even in under 3 months and save serious money every month after that.

Many lenders offer refinance cashbacks to attract new customers, ranging from $2,000 to $4,000. These can wipe out your refinancing costs entirely. Watch the cashback clawback period (usually 3 to 4 years) before committing.

When NOT To Refinance

Refinancing is not always the right move. Four scenarios where you should wait or skip it.

• You are on a fixed rate with more than 12 months remaining. Break costs will usually wipe out the savings. Wait until your fixed term ends.
• You are selling within the next 12 months. Refinancing costs take time to pay back. If you are moving soon, it is rarely worth the hassle.
• Your LVR is above 80% and you cannot avoid LMI. If refinancing triggers a new LMI payment of $10,000+, the maths rarely works unless you are getting a much lower rate.
• Your current rate is already near the panel low. If your gap is under 20 basis points, there is not enough on the table to make the effort worthwhile.

The Refinance Process

A typical refinance takes 4 to 8 weeks from decision to settlement. Here is the path.

1. Compare rates. Use a broker or tool like Lendera's rate comparison to see what you qualify for across 60+ lenders. 1 day.
2. Gather documents. Pay slips (2 recent), last 2 tax returns or notices of assessment if self employed, latest bank statements, existing loan statement, ID. 1 to 3 days.
3. Submit application. Your broker or direct lender lodges. 1 day.
4. Conditional approval. Lender reviews and issues conditional approval subject to valuation. 2 to 10 days.
5. Valuation. Lender orders a valuation of your property. 3 to 7 days.
6. Formal approval. Final green light once valuation is back. 1 to 3 days.
7. Loan documents. New lender sends loan documents for signing. 3 to 7 days.
8. Settlement. New lender pays out your old loan, registers the new mortgage. 1 day on the scheduled date.

Your broker handles most of this. Your job is to provide documents promptly and sign when asked.

Vish

Founder and Licensed Mortgage Broker

Vish studied medicine and law at the University of Sydney before switching to finance broking after no one would help him get a loan for his first property. He bought 3 properties before turning 24 and started Lendera because he believes borrowers deserve transparency, not gatekeeping. You can compare rates from 60+ lenders without entering any personal details, access the Home Loans Academy and first home buyer and refinancing checklists at no cost, and speak to his team of brokers when you are ready.

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