Why refinance your home loan?
Refinancing your home loan might seem like a good idea, especially if there are lower interest rates available and attractive cashback offers on the market in Australia.
And it could be. There are several ways refinancing may benefit you. Moving your loan to a new bank might mean you can:
How do you figure out if refinancing will help?
When it comes to refinancing, you need to think about the full picture of benefit versus cost.
Start with our refinancing calculator. This calculator will tell you how much a new interest rate might save you over the lifetime of a loan.
Next, you need to weigh up the costs – there are a few to consider.
There will be charges and fees from your current lender, and from your new lender if you’re switching banks. Interest rates over the long term are another big consideration.
It's critical to do your research, examine your personal financial situation as a borrower, and read the fine print in product disclosure statements and disclaimers to ensure you avoid the common pitfalls.
What are the costs of closing my current loan?
Here are some of the main costs of refinancing:
Your lender may charge you a break cost if you leave a fixed home loan early.
The way break costs are calculated can be quite complex, but basically this fee will cover any potential losses your lender might incur because of your early exit.
If you want a more in-depth explanation, read what is a break cost?
Discharge settlement fee
You might also be charged a discharge settlement fee (aka a settlement, loan exit or termination fee) for closing your home loan.
Lenders charge this fee to cover the cost of admin when you exit a loan. It can apply to both variable rate and fixed rate home loans.
What are upfront costs for the new loan?
Application fee / Establishment fee
You may need to pay an application fee to cover the admin cost of setting up a new loan when you refinance. If you’re refinancing to a Westpac Flexi First Option home loan or choosing the Premier Advantage Package, we waive this fee.
Property valuation fee
A new lender may need a property valuation to get an accurate picture of your equity. The cost can vary and some lenders may include the valuation in your application fee. Read more about bank valuations.
If there are legal costs in settling a new home loan with the lender, you’ll also pay a settlement fee.
Mortgage registration fee
You’ll need to register your new mortgage with state or territory government. When you do, you will pay a mortgage registration fee, which will vary depending on location.
What about ongoing costs and other considerations?
There are other pros and cons for different types of home loans, so research those before you make a decision.
Don’t double-up on Lenders Mortgage Insurance
Lenders Mortgage Insurance (LMI) generally applies to home loans where the loan-to-value ratio (LVR) is over 80 per cent.
If you paid Lenders Mortgage Insurance to your lender when applying for your existing loan, and your LVR is still higher than 80 per cent, you could end up paying LMI twice over when you refinance.
Consider ongoing fees
Your new loan will come with different terms and conditions. Read these carefully and keep an eye out for ongoing costs like regular monthly fees or early repayment fees.
Switching your interest rate type
When you refinance, it’s a good opportunity to weigh up the relative merits of fixed interest rates and variable interest rates. But there are several considerations and potential costs to take into account before you make the decision.
Introductory rates are a short-term consideration
Introductory interest rates on variable rate home loans can be attractive – but after the intro term, the promotional rate will switch to the standard variable rate. It's important to know what those rates are and what they mean for your repayments and interest charges over the life of the loan.
Consider keeping your current repayment amount
Refinancing to a lower interest rate can be a good opportunity to make the most of lower regular minimum repayments. But it also gives you the option to maintain the same repayment amount as your previous loan and reduce your debt faster. Doing this could potentially save you thousands.
Fixing your rate may mean less flexibility
Keep in mind that if you switch to a fixed interest rate home loan, there may be limits to what you can repay over the fixed interest rate term before you incur break costs – so make sure you factor that figure into any extra repayments you make.
Changes to your loan-term
If you add years to your loan term when you refinance, your repayments may reduce, but the total amount you’ll end up paying to repay the loan will increase.
Is refinancing right for you?
There are potential benefits as well as costs to refinancing your home loan, so it’s important to consider a number of factors before taking the next step:
- Do your research before refinancing
- Check any upfront and ongoing fees
- Weigh up different home loan types
- Consider what a different loan term might mean
- Use our refinancing calculator to work out the costs
The important thing is to have a clear picture of what you stand to gain (or lose) by refinancing.
Make sure you know how your new loan works – it might help to do some calculations to work out if different options will save you, or cost you, money in the long-term.
Start your research now with our refinance calculator and other Westpac home loan calculators. If you think refinancing with Westpac is something you’d like to explore, check our refinance cashback offer.