The risks and benefits of refinancing your home loan

Know the pros and cons of refinancing so you benefit from a good switch.

Refinancing pros and consRegardless of whether you’re thinking about refinancing to get a better interest rate or as a way to consolidate your debts, refinancing can be quite costly and may end up costing you more in the long run, so it pays to be informed.

Refinancing won't suit every borrower, so by reading the list below you make the best decision when considering whether or not to make a switch.

The benefits of refinancing

  • Access equity. One of the benefits of refinancing is having the chance to access equity you’ve collected in your home loan. This can then be used for things like renovations, investing, purchasing a new car, taking a holiday, or any other pursuit you may be able to think of.
  • Get a better rate. Another benefit of refinancing your home loan is to get a better interest rate so your repayments will be lower. If you know you qualify for a low rate this could potentially save you a lot of money. This is one of the biggest benefits of refinancing.
  • Increase the length of your mortgage. This can reduce your repayments by spreading them out across a longer period of time. This may not be the best solution if you’re having trouble making payments. Try to seek the advice of a professional financial counsellor who can help you get out of your repayment rut, as over time you’ll spend a lot more in interest if you opt for this strategy.
  • Shorten the length of your mortgage. Refinancing can also do the opposite of the aforementioned benefit and shorten the length of your mortgage. This will lower the amount of money you spend on interest in the long run, but increases your repayments. This allows you to pay off the loan faster and gets you out of debt quicker.
  • Security. By choosing to refinance your home loan you may also be able to switch to a fixed rate loan. This will allow you to benefit from the protection of a locked interest rate which will stay the same for the entire life of the loan and protect you from fluctuations in the market. If you currently have a variable rate home loan refinancing to a fixed rate might benefit you.
  • Pay less in fees. Refinancing your home loan can also help lower the amount of money you spend on fees. Your current home loan may have built in fees for additional features like offset accounts or redraw accounts. If you refinance you might be able to drop these features or eliminate the fees for them.

The risks of refinancingRefinancing risks and benefits

  • Lenders Mortgage Insurance. One of the risks of refinancing your home loan is that you may need to pay Lender’s Mortgage Insurance (LMI) to your new lender, even if you’ve already paid it. This is usually only true if you have a loan-to-value ratio (LVR) that is above 80 percent, which basically means you have less than 20% equity in your property. LMI can be expensive, so this may undercut the savings you receive from refinancing.
  • Fees. There may also be exit fees that you’ll have to pay out of pocket, too. These are fees that you may be charged for exiting out of your loan early and if you have a fixed rate home loan, these can be quite high. There may also be upfront fees for your new loan as well. In addition to exit fees there are also upfront fees charged by your new lender, such as application fees and valuation fees.
  • Longer loan duration. Refinancing may also lock you into your home for longer than you planned on staying. If you had hopes of moving soon, refinancing your home loan could hurt your efforts. If you move too soon the monthly savings you gained may not have been worth the overall cost of refinancing.
  • If you have a bad credit rating you might not get a good rate. Refinancing your home loan can also hurt you if you have bad credit history. If your credit history is less than stellar you may end up with a higher rate when you refinance. This isn’t in your best interest and can hurt your bottom line. A poor credit history can give you a higher interest rate instead of the lower rate that you were hoping for.
  • It could damage your credit history. If you have poor credit history and continue making applications to refinance you could damage your credit file further. This is because every application for credit is recorded on your file. Too many applications in one space of time could lead to denied loan applications, which further damage your credit file. Before refinancing it’s always a good idea to get a copy of your credit file.
  • More features could equal more fees. A sometimes hidden risk in refinancing comes in additional features that a lender may offer. A lender is always looking for business so they may try to persuade you to refinance by offering you features like a free credit card or an offset account. While these may sound like benefits, they could come with additional fees or tempt you to spend more. If your current home loan doesn’t have additional features it also might not have the additional fees. This will mean that while you’re possible saving in interest, you’ll be paying more money in fees.

Compare refinancing home loans

Rates last updated September 20th, 2018
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Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.64%
3.65%
$0
$0 p.a.
80%
Get a very low interest rate and pay fewer fees. Enjoy a fast online application process and add a 100% offset account for $10 a month.
3.64%
3.66%
$0
$0 p.a.
90%
Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online. Available with just a 10% deposit.
3.59%
3.59%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
3.64%
3.66%
$0
$0 p.a.
80%
A simple mortgage with a competitive interest rate and no application or monthly fees. Borrow up to $2 million from a convenient online lender.
3.65%
3.66%
$0
$0 p.a.
90%
Competitive interest rate and low fees. Available with a 10% deposit. Partial offset account attached (offset up to $15,000).
3.87%
3.91%
$0
$10 monthly ($120 p.a.)
90%
Get Velocity Frequent Flyer Points at settlement, monthly and every three years, plus the option to make up to $10,000 a year in extra repayments.
3.49%
4.57%
$0
$395 p.a.
90%
Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.64%
3.64%
$0
$0 p.a.
70%
A basic variable home loan that offers a competitive interest rate with no application fees and no ongoing fees.
3.64%
3.65%
$0
$0 p.a.
80%
Fast, 100% online application process. Very limited fees. Optional offset account (with fee).
3.68%
3.82%
$0
$10 monthly ($120 p.a.)
80%
Get double Velocity Frequent Flyer Points with this mortgage to spend on flights and more (for a limited time, subject to eligibility requirements). Redraw facility available on this variable rate home loan. Competitive interest rate.
3.69%
3.70%
$0
$0 p.a.
70%
Keep your LVR at 70% or below and enjoy a special discounted rate. Also, pay no application or ongoing fees.
3.69%
4.12%
$0
$395 p.a.
80%
Unlock a range of savings with this competitive package home loan offer. Offset account and redraw facility included.
3.64%
3.78%
$0
$10 monthly ($120 p.a.)
80%
Earn double Velocity Frequent Flyer Points on your mortgage for a limited time (subject to eligibility requirements). Plus, access a 100% offset account to save on interest.
3.54%
3.58%
$0
$0 p.a.
80%
Get a competitive rate, save on fees and access a 100% offset account plus redraw facility. $900 cashback offer.
3.74%
3.74%
$0
$0 p.a.
80%
A basic owner-occupier home loan with a low variable rate that requires a 20% deposit.
3.68%
3.70%
$0
$0 p.a.
80%
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments.
3.64%
3.64%
$0
$0 p.a.
70%
A low interest rate home loan with no application or ongoing fees.
3.79%
3.80%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.
3.75%
4.00%
$0
$248 p.a.
70%
Borrowers with a 30% deposit can get this competitive rate.
3.70%
3.70%
$0
$0 p.a.
70%
Get a discount for keeping your LVR at 70% or below with this innovative online lender.
3.88%
4.40%
$0
$395 p.a.
90%
Lock in a very competitive 2 year rate and get package discounts on your credit card and offset account.
3.77%
3.81%
$695
$0 p.a.
95%
A simplified mortgage with a low interest rate and a redraw facility.
3.75%
3.75%
$0
$0 p.a.
70%
Pay no application or ongoing fees and get a flexible loan with the ability to split up to 6 times.
3.84%
3.84%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a free redraw facility with this innovative online lender.
3.59%
3.64%
$0
$0 p.a.
80%
Apply online and get fast approval for this fixed rate, low-fee loan with redraw facilities. Add a 100% offset account for a small fee.
3.72%
4.10%
$0
$395 p.a.
80%
New borrowers or refinancers can get a discounted rate with this package loan. Bonus $1,500 cashback for refinancers.
3.62%
3.62%
$0
$0 p.a.
95%
A low deposit mortgage with a competitive rate and plenty of flexibility. QLD residents only. Eligible borrowers can get a 15% discount on home and contents insurance for the life of their loan.
3.72%
3.74%
$0
$0 p.a.
80%
Save on interest by taking advantage of a 100% offset account along with no ongoing fees or application fees.
3.85%
3.85%
$0
$0 p.a.
80%
Pay no application and ongoing fees with Macquarie Bank Basic Home Loan. Split and redraw facilities included.
3.79%
3.79%
$0
$0 p.a.
80%
Access an offset account and pay no application or ongoing fees on this special variable rate for owner-occupiers.
3.67%
3.69%
$0
$0 p.a.
80%
A great interest rate home loan offer with unlimited redraw and unlimited extra payments.
3.74%
3.74%
$0
$0 p.a.
110%
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, Qld and ACT only.
3.69%
4.08%
$0
$349 p.a.
90%
Package your loan with other AMP products and save on rates and fees.
3.71%
3.71%
$0
$0 p.a.
70%
A variable rate home loan that has a lot of flexible features. This loan has a 100% offset account.
4.13%
4.14%
$0
$0 p.a.
90%
Access a fee-free offset account and a special interest rate for investors.
3.89%
3.94%
$0
$0 p.a.
90%
Borrow up to 90% of the value of the property you're buying, and pay no application fee.
3.77%
3.79%
$600
$0 p.a.
90%
Buy your home with just a 10% deposit, few fees and a reasonable interest rate.
3.93%
3.94%
$0
$0 p.a.
80%
A low-fee line of credit loan from an online lender. Unlock the equity in your home and make interest-only repayments with a competitive rate.
3.99%
4.86%
$0
$0 p.a.
80%
Access a fee-free 100% offset account and pay no application or ongoing fees.
3.69%
4.54%
$0
$395 p.a.
90%
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150k receive a discounted rate. NSW, QLD and ACT residents only.
3.74%
3.74%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a redraw facility and flexible repayment schedule.
3.89%
3.91%
$0
$0 p.a.
80%
This variable rate loan keeps the features simple and fees low. This loan is offered by a 100% online lender.
3.89%
4.94%
$595
$0 p.a.
90%
Borrow up to 90% of the value of the property you're buying and pay no application or ongoing fees.
4.14%
4.81%
$0
$0 p.a.
80%
Pay no application fees and access a fee-free redraw facility with this fixed rate loan.

Compare up to 4 providers

How to minimise the risks of refinancing

While there are both risks and benefits to refinancing your home loan there are things you can do to minimise the risks to you and maximise the benefits. By studying the market you can see if refinancing will benefit you in terms of a lower interest rate. You should also research and compare home loans to make sure that they won’t cost you extra money in fees or to see if the savings will still outweigh the additional fees. You can also make sure you know your own credit history so you’ll know that you won’t get hit with a higher interest rate or higher closing costs due to poor credit.

If you have any concerns regarding refinancing your home loan it’s best to consult a mortgage broker or other financial advisor. Their expert advice can help you decide whether refinancing is the best option for you. You may also choose to use at-home tools like loan comparison calculators or refinancing fee calculators.

Top tips when refinancing

Refinancing risks and benefitsYou should shop around for home loans before deciding on one. Rates can vary dramatically from one financial institution to another as can additional fees and features. You should also read reviews of the lender in question or talk to friends or family who’ve used them so you know what to expect in terms of customer service.

Don’t get lured in by a lower interest rate. If you have a mortgage with one interest rate and realise that you can refinance for a slightly lower rate you may figure that refinancing is the best deal, but you have to take in all of the extra costs involved in the process. To get a good deal, figure out the exact numbers you’ll need to break even on the deal. This will allow you to actually save money instead of falling into a trap.

There are always expenses tied in with refinancing even when they’re advertised to have none. Some lenders may say that there are no closing costs with their service but there will still be out of pocket costs to you. Research these before entering into the loan.

You may want to research cash-in refinancing when shopping around. You may be able to swap your existing home loan for a smaller one. This option can allow you to bring money to the closing table which can increase your home equity if your property value decreased.

Consider speaking to your current lender before refinancing. Often just the thought of you leaving will entice them to offer you discounts on your rates or fees.

Refinancing your home loan can be a great way to save money. It can give you a lower interest rate, release equity from your home and help you get rid of fees attached to your original loan. There are both benefits and risks to refinancing and both should be researched carefully before any decisions are made.

Marc Terrano

Marc Terrano is a Lead Publisher at finder. He's been writing and publishing personal finance content for over five years and loves to help Australians get a better deal.

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Important Information*
UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000

Take advantage of a low-fee mortgage with a special interest rate of just 3.59% p.a. and a 3.59% p.a. comparison rate.

loans.com.au Essentials - Variable (Owner Occupier, P&I)

A competitive interest rate home loan with interest only options. Interest rate 3.64% p.a.
comp rate of 3.66% p.a.

Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤90% ($150K+ Owner Occupier)

Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.

Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150k+ Owner Occupier, P&I) Discount 1

New borrowers or refinancers can get a discounted rate with this package loan. Bonus $1,500 cashback for refinancers.

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2 Responses

  1. Default Gravatar
    tesJanuary 20, 2015

    which is better in terms of getting money from home loan..equity or topping up the loan..whats the benefits will it give me

    • finder Customer Care
      ShirleyJanuary 21, 2015Staff

      Hi Tes,

      Thanks for your question.

      The nature of this enquiry comes under financial advice as it takes into account your personal and financial situation. Please speak to your financial advisor or lender about the benefits that each option could give you.

      When applying for a top-up, your lender will take into account your current income and liabilities and possibly require an updated property valuation. For tapping into your equity, experts suggest that you think about the purpose of the funds and if it would enhance the value of the property.

      Cheers,
      Shirley

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