An Easy Guide to Refinancing (And What to Watch Out For)

November 15, 2023
An easy guide to refinancing

As interest rates have been rising from record lows, it’s understandable that Australians have been flooding the market to refinance. For those coming off the fixed rates they secured when rates were low, the automatic variable rate they would switch to is likely higher than the average variable rate on the market.

While they won’t get a rate as low as they could have a couple of years ago, there are still savings to be had. And according to Finder’s Housing Market Report, 3 in 4 Australians are completely switching lenders to find those savings.

But, it’s important to know what you’re doing when you refinance to make sure you don’t actually end up paying more. Yes, even if you switch to a lower interest rate!

1. Look into your own loan

I’ve recently asked some friends what the interest rate is on their home loan and, shockingly, they’re not sure. If you want to save money, the very first thing to do is look at the details of your existing home loan.

That doesn’t just mean the interest rate, either. Check the rate you’re paying, but also look at what fees come with the loan – ongoing fees should all be included in your comparison rate, so that’s the rate to pay the most attention to. 

Also look at whether you will need to pay any early repayment fees if you ended your current loan. If you’re on a fixed rate home loan, you may need to pay a fixed rate break cost.

You should also look at what your current lender is offering to new borrowers, as they may be getting better deals.

2. Compare loans from other lenders

Once you know where you stand with your existing lender, it’s time to take a look at what else is on the market

From Big Four banks to small online lenders, there are hundreds of loan options available. 

As well as looking at the interest rate, don’t forget to check that any new loan you look at has the features you want: whether that’s an offset account, redraw facility or credit card package. 

Just like when you checked your existing loan, check the fees of any rate you like the look of. Switching to a new lender might mean paying an application fee, or you might find it charges for features like the offset account.

3. Calculate

An easy guide to refinancing

If you find loans which you think would give your current interest rate a run for its money (literally!), it’s time to do the maths. 

Use a repayment calculator to see how much you could save if you switch. Then, add up how much you would pay in exit fees and/or application fees if you were to refinance, plus any other ongoing fees the new lender charges.

Sometimes the fees can be wiped out by the savings you’ll make, but if you’d end up paying more in fees than you’d save, it might not be worth it.

In some cases you might want to consider a new rate from your current lender which is slightly higher than other rates on the market if it means not paying exit or new application fees.

What to consider with cashback: Many lenders offer cashback incentives to get borrowers to switch their loans. While the thought of a lump sum in your account can seem enticing, it’s not worth it if you’re not getting ongoing savings.

4. Call your lender to negotiate 

If you’ve found a new loan which is going to be cheaper, the first thing you want to do is call your existing lender. It might be that you can negotiate a better deal with it now you know what other rates are out there and what rate it offers to new borrowers. 

If you’re not sure what to say, here are 2 example scripts that we prepared earlier.

5. Make the switch

If switching to a new lender is the better move, you can begin the application process.

As with your previous home loan, you will need to verify your ID and provide the relevant documents to prove your employment and income. 

If approved for the new loan, these funds will be used to pay out the entirety of your existing loan. 

For a full rundown on how to refinance, including what mistakes to avoid, see Finder’s comprehensive guide.

Rebecca Pike
Rebecca Pike is Finder's senior writer for money. She joined Finder after almost four years writing for business publications in the mortgage and finance industry, including three years as editor of Mortgage Professional Australia. In her role she led several roundtable discussions with heads of banks and finance institutions, as well as livestream interviews and webinars. Rebecca started her journalism career writing for local newspapers in the UK, and has a Masters degree in Multimedia Journalism from the University of Kent.
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