Switching lenders could save you thousands. Find out how.
Being loyal to your home loan lender could be costing you thousands of dollars over the course of your loan term. The good news is that the mortgage market is full of lenders offering great deals to all types of borrowers. Refinance home loans and you could end up with a cheaper home loan which better suits your needs.
Scroll down to compare some of today's top refinancing deals in the table below. You can also read on further to learn how the refinancing process works and some tips for a more successful switch.
loans.com.au Home Loan Offer
The loans.com.au Essentials PI - Refinance Special is a low rate with no monthly fees. Borrow up to 80% of the property's value. For owner occupiers and principal and interest repayments only.
- Interest rate of 3.54% p.a.
- Comparison rate of 3.56% p.a.
- Application fee of $0
- Maximum LVR: 80%
- Minimum borrowing: $50,000
- Max borrowing: $1,000,000
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Aggregator of the Year 2016
Australian Mortgage Awards
Compare some of today's refinancing home loan rates at a glance
- loans.com.au Essentials PI - Refinance Special: Interest rate 3.54% (comparison rate 3.56%)
- HSBC Home Value Loan - Resident Owner Occupier only, P&I: Interest rate 3.65% (comparison rate 3.66%)
- Homestar Refinance Owner Occupier Special: Interest rate 3.44% (comparison rate 3.45%)
- NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier P&I): Interest rate 3.88% (comparison rate 4.89%)
- Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤90% ($150K+): Interest rate 3.49% (comparison rate 4.47%)
- Yellow Brick Road Rate Smasher Home Loan: Interest rate: 3.58% (comparison rate 3.58%)
Refinancing is the act of switching home loans. This can be by moving your loan to a new lender, or just by changing the type of home loan you have with your existing lender.
Usually, refinancing is done to get a lower rate or a loan suitable for pursuits such as renovations.
More often it's done by switching to a new lender that may offer an interest rate or features that better suit your situation.
While most people refinance to get a better rate, there are a whole range of reasons you might want to say goodbye to your existing lender and look for a new one.
Let's have a look at the various reasons below:
1. For a better interest rate
It's always a good idea to approach your existing lender first to ask for a better interest rate. Make sure you do your research beforehand and show them the existing deals in the market and ask if they can match it. Staying with your existing lender could mean that you save on discharge or exit fees plus application fees of your new loan, not to mention the amount of paperwork you've saved. If your lender is unwilling to help, then it might time to move on.
2. To access and use equity
If you've built a significant amount of equity in your home that you'd like to access, you could opt for an line of credit home loan. You can use this equity to purchase other properties or assets, such as funding a renovation for your home or purchasing a new car. One of the advantages to this is that you can purchase an item with the same interest rate as your home loan, rather than the higher interest rates charged on personal loans or credit cards. However, one of the risks of accessing this equity is that it might take a bit longer to pay off your mortgage.
3. To get new features
Again, it's a great idea to approach your lender first if you want more features. Features like additional repayments, a redraw facility, portability and offset accounts can help you save on interest repayments. If your existing home loan doesn't have these features and you want more flexibility in your home loan, it might be time to switch.
4. To pay less in fees
Fees should always feature in a home loan comparison. Compare the application or establishment fees, ongoing fees, valuation fees, monthly or annual fees, and any other fees for using features such as redraw facilities or 100% offset accounts. Just because a home loan has an annual fee or application fee it doesn’t mean it should be avoided. Take the time to look at it in depth and find out whether the fees are worth it for the benefits.
5. To get a loan that better suits your life
Different home loans suit different life stages, look below to see what kind of loans or characteristics may suit you.
First home buyers
- Low rate and low fees
- Ability to make extra repayments
- Introductory rate or basic home loans may suit these borrowers
Young professional or family
- Redraw facility
- Standard variable or fixed rate loans may suit these borrowers
Middle aged professional
- Redraw and offset facilities, packages with linked products
- Convenient and flexible product
- Package home loan or line of credit loan may suit these borrowers
Preparing for retirement
- Low rates and fees
- Ability to access home equity
- Line of credit home loan or basic home loan may suit these borrowers
55 and over/retired
- Redraw facilities and option to access equity
- Line of credit home loans or reverse mortgages may suit these borrowers
6. To take advantage of a cashback offer
Many home loans will offer refinancing cash incentives or sign-up bonuses all year round. These offers are especially prevalent during the spring "mortgage season". Cashback incentives are usually around the $1,000 mark, but can be as high as $2,000. These offers can be a great way to minimise the costs of refinancing, but be sure that the loan you’re applying for still has a competitive rate, fees and features so that once the cash is gone you’re not left with an uncompetitive loan.
- 7. To consolidate debts
Can I refinance my home loan and consolidate my credit card debt?
It's definitely possible to refinance and consolidate your debit card debit. Your lender will assess your current income and entire loan amount. You'll also need to take into account lenders mortgage insurance and refinancing costs. Be sure that the amount you'd like to refinance is less than 80% LVR.
8. To get better customer service
Not all banks are equal, and this is the most difficult consideration to measure. Make sure that you ask the following questions and that the lender meets up to your expectations:
- How much guidance and support are you going to provide?
- Does the support align with my needs?
- Is it you that I'll speaking to the whole time?
Having one person dedicated to your home loan application and needs is a lot easier and more convenient than speaking to multiple departments. What sort of guidance will you be providing through this process? The amount of support they're willing to offer generally reflects the standard of their customer service.
- You could get a lower rate
- You could save on fees
- Your loan might suit you better in terms of interest rate type and features
- Your new lender might offer better service
- You'll have to pay a discharge fee to get out of your old loan
- You'll usually have to pay upfront fees for your new loan
- You might have to pay expensive break fees for your old loan when you leave if it's a fixed rate
You can divide refinancing costs into two types: exit costs for your old loan and upfront fees for your new loan.
Exit costs of old loan
|Discharge fees||$200 - $400|
|Exit fees||Costs vary|
Upfront costs of new loan
|Application/establishment fees||$200 - $600|
|Valuation fees||$100 - $300|
|Settlement fees||$100 - $300|
|Legal fees||$75 - $150|
|Lenders mortgage insurance (LMI)||Varies|
Refinancing involves first speaking to your lender to see if they can give you a discount or offer a better loan. Presuming this doesn't solve things, you'll then compare other loans and apply for one you're interested in.
The diagram below explains the process visually.
Refinancing should be done when you can get a home loan which costs less (either in fees and rates) and still suits your needs, or suits them better than your previous loan.
Other reasons for refinancing include:
- To renovate your home
- To consolidate debts
- To buy a new home
Watch: Former Aussie Home Loans General Manager of Marketing Stuart Tucker sums up when you should consider refinancing:
- You have a fixed rate home loan with a very high exit cost and the cost of fees could outweigh the benefits of refinancing until the fixed rate period is over
- You think you’ll probably sell your property in the near future and you won't keep the loan long enough to make any decent savings
- Your loan amount is small; in this case the savings you’ll get by refinancing might not be worth the interest you’ll pay
- You've been with a lender for quite some time, enjoy the service you receive and have other products with them (you might be better off asking your lender for a discount)
- Your property value has fallen or your LVR is still over 80%. This could see you pay lenders mortgage insurance again
- You need to refinance to a longer term. This could result in more interest paid
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Generally you’ll need to provide proof of your salary and other income, government payments, home loan statements and a copy of your council rates notice, statements for any liabilities and either your drivers licence or passport. Once your information has been reviewed, your lender can normally give you a response fairly quickly. The verification, valuation and assessments, approval and settlement can take up to a month or more to complete depending on your financial situation.