When Can You Refinance Your Home Loan?

February 2022 – 10 minute read

What you’ll learn

• When’s the right time to refinance a home loan?
• Why your current financial situation is important?
• Can I borrow more when I refinance?
• Can I refinance more than once a year?
• What else should I consider?

1.   When’s the right time to refinance a home loan?

When considering refinancing a mortgage, there are many questions:
 

• Should I do it now?
• Do I wait for interest rates to drop?
• Is my interest rate competitive?
• Is the timing right for my needs?
• Will I save money?
• Can I refinance a fixed rate home loan?

This is why there are several factors you need to consider when you talk about timing and switching loans:

What you need to watch out for

There are many variables at play when you consider the type of loan (fixed rate loan or variable loan), interest and comparison rate, offers, and features offered by lenders. Before you even contact a lender, you need to look at what’s involved in closing out your current mortgage, as that’s where you could get unstuck. 

Closing costs that could impact your switch to a new lender:
 

• Early exit fees (these can be costly if you refinance before a specified period)
• Fixed rate home loan break costs (if your current fixed period has yet to expire)
• Discharge or settlement fees (approximate range $150 to $700).
   

2.   Why your current financial situation is important?

When you approach a lender or credit provider for a new home loan, they’ll want to assess your ability to repay the loan. That means you’ll need to provide details of your personal and financial situation, proof of income, pay slips and other information to meet their lending criteria. Each lender will have its criteria, but in general, lenders will look for three things, sometimes called the three ‘Ps’ of lending:

Know your borrowing power

As every lender has different criteria, knowing what you could potentially borrow with your latest financial and personal details is essential.

At Westpac, our handy home loan calculators can help you estimate how much you could borrow as well as what your monthly repayments might be:

3. Can I borrow more when I refinance?

Your ability to borrow more against your property will depend on three things:

• The current value of your property
• The loan to value ratio (LVR)
• Your ability to make the repayments.

Why would you want to increase your mortgage when refinancing?

There are several reasons why you might want to increase or ‘top up’ your mortgage:

• Finance home improvements
• Buy an investment property
• Buy a new car or boat
• Debt consolidation

As long as the property valued has a loan to value ratio (LVR) of 80% or less, you should be able to borrow against the accumulated equity.

4. Can I refinance more than once a year?

No rule says you can’t refinance more than once, but it may not be the most practical thing to do, especially if you consider refinancing costs. However, if you have a good reason to do it, or you have no choice and need to sell your property quickly, it can be done. Be particularly careful if your current home loan is on a fixed interest rate as you could be up for break costs as well.

Will multiple refinance applications affect my credit score?

Yes, it might, especially if you’re applying to multiple lenders in a short period. If you’re refinancing within the same year, don’t apply to several lenders, do your homework and decide which lender you’ll use or approach a local broker. Before considering refinancing, it’s always a good idea to talk to your current lender first. They may be able to meet your expectations without having to refinance, which will mean your credit score stays intact.

5. What else should I consider?

Before you make any decisions, you need to be clear on why you want to refinance your home loan. The reasons you’re looking for a new mortgage could be addressed with your current loan by using features that you may not be aware of or changing the way you’ve structured your loan. That’s why before you put in a new home loan application, talk to your current lender and request a review. Keeping your lender means you'll avoid costs and fees such as:
 

• Discharge or settlement fee
• Property valuation fee
• Mortgage registration fee
• Search title fee
• Exit fees or break costs
• Application fees
• Lenders Mortgage Insurance

What are my options?

No matter what you decide to do, your lender should encourage you to review your home loan regularly, either when there’s a change in circumstances, interest rate, market trends or if you haven’t reviewed your home loan in over 2 years. A good home loan should have the features and flexibility to change with your ever-changing needs. Features and services that you may want to consider, as your needs change, could include the ability to request a repayment holiday, have a transaction account linked to your loan for scheduling repayments or as an offset account which could reduce interest repayments.

Always go to your lender first

If your lender can meet your current lending expectations, you’ll save on all the hassles and costs of refinancing. The same lender can also give you details about features and services that you may not use to the full potential. They should be able to show you how your loan can change as your future needs change.

Features you can use instead of refinancing

You don’t necessarily have to refinance your loan if you're buying and selling property. If your loan has a portability feature, it will let you substitute the property held as security against the loan with a different property. Portability benefits mean you avoid the costs associated with a new loan and the need to complete a full application. It’s typically much faster, too, meaning you can keep all the current loan's features like an offset account, interest rate, setups, and structure. There will also be no break costs involved if you have a fixed rate loan and use your portability feature.