Why Refinance Your Home Loan?
If circumstances change and your current home loan and features aren’t up to scratch, refinancing could get your financial goals back on track.
February 2022 – 8 minute read
What you’ll learn
1. What does refinancing mean?
When you refinance a home loan, you close off your current mortgage and open a new one. A new home loan application will require you to provide personal and financial details, paperwork including payslips, and therefore could take several weeks to be processed and approved. Further, you could incur fees when refinancing. These may include:
- Discharge or settlement fees (approximate range $150 to $700)
- Early exit fees or fixed rate home loan break costs (these can be costly if you refinance before a specified period)
- Application fees (approximate range $150 to $700)
- Property valuation fees (approximate range $100 to $300)
- Mortgage registration fee (vary by state from $116.80 in VIC up to $187 in QLD)
- Search title fee (approximately $50 per search)
- Lenders mortgage insurance (if your deposit/equity is less than 10% and is dependent on your loan amount).
You can apply for a new loan or loan increase with your current lender or choose to refinance with a new lender or credit provider. Find out how to refinance a home loan.
How do I apply for a new home loan?
Approach your current lender first, as they know you best or put in a new application with a new lender. You may even want to contact a mortgage broker who can introduce loans from several lenders. When looking at different lenders, ensure you look at the comparison rate as that's a more accurate indicator of what you can expect to pay as it includes fees and interest rates. Also, comparison rates will differ when comparing owner occupier interest rates against investor rates.
Here at Westpac, there are three ways you can borrow money for a loan increase or for a new home loan application:
2. What are the benefits of refinancing your home loan?
Depending on your circumstances, your home loan, and the opportunities available with new mortgages, refinancing could offer the following benefits:
- Lower interest rate/comparison rate
- Lower ongoing fees
- Reduced repayments
- Options for weekly, fortnightly, or monthly repayments
- More valuable and flexible features and services
- Access to equity or a loan increase to fund a renovation, investment property or new car
- Debt consolidation – personal loans or car loans
- Discounts on other products
- Other new home loan incentives.
Before refinancing, list the home loan outcomes you’re looking to achieve, from how long you want your loan, whether you want a fixed rate loan or a variable loan, what monthly repayments you can afford, to the features and services you’d like.
What are the features available on your average home loan?
Most lenders will give you options on the loan term (how long you have the loan for), the loan type (Owner occupied, investment, bridging or construction loan), rate type (fixed or variable interest rate or split loan) and repayment type (Principal and Interest or Interest Only). Considering most mortgage terms are taken out for up to 30 years, your needs will change over that time. Finding a lender with an array of flexible home loan features will provide a better deal for you in the long term, especially if you want to reduce interest payments and pay off your loan sooner. Just watch out for any eligibility criteria for the loans involved or restrictions with usage.
At Westpac, we’ve got an array of additional features, services, and tools you can use as your needs change:
3. What are the risks when switching home loans?
When refinancing, you need to look at the big picture, meaning look beyond the incentives and low introductory rates. Weigh up the pros and cons and look at your home loan repayments, including applicable fees. Apart from the costs to close and reopen a new loan, be mindful of the following ongoing and potential fees:
- Monthly account keeping and annual fees
- Fees on features like redraw or portability
- Late payment fees
- Switching fees
- Break costs if your fixed rate period has not yet expired.
Refinancing often also means extending your loan term. The gains you’ve made on your existing loan will be lost, so you’ll pay more interest over the life of your loan. It would help to secure a lower interest rate to counter the gains you'd lose.
You get what you pay for – it’s more than just interest rates
Sometimes a loan offer can look better than it is. A basic loan with no frills might look great now, but when you want to change something, you can’t, or you’ll pay a fee for the privilege.
At Westpac, our Rocket Repay Home Loan comes with all our features, designed so that your loan can change with you. Add our home loan package# (just $395 per year), and benefit from an interest rate discount, no ongoing account keeping fees on your mortgage or your everyday bank account and no annual fee on a selection of Westpac credit cards^.
Can refinancing my home loan affect my credit score?
Refinancing your mortgage won’t affect your credit score if you're not making multiple home loan applications within a short period. It’s better to do your homework on each lender before choosing one and then completing a formal application. You can always contact a mortgage broker who can do your research. They’ll present you with the top options that suit your needs for your consideration. But before you do anything, it’s always wise to contact your current lender as they may be able to make changes to your loan that will save you both time and money.
All it could take is just a 15-minute chat
Avoid the hassles, paperwork and break costs that may be involved when you refinance with another bank. Give us the chance to help you stay. Call 8am-8pm, Mon-Fri and 9am-6pm, Sat (Sydney time): 1800 807 693 or request a callback.
4. Why refinance your home loan?
If your circumstances have changed or you feel you’re not getting the most from your home loan, you might consider refinancing. Some of the common reasons for refinancing a mortgage include:
- Doesn’t offer features you need
- Want to increase your home loan account balance
- Want to take up a special offer from a lender
- Want to save money by getting a lower rate
- For debt consolidation – personal loan, car loan, debts
- Change in financial circumstances
- Growing your family
- Changes to family or company trusts
- Poor experience with your current lender.
Ask for a Home Loan Health Check
Westpac customers can get help by calling 8am-8pm, 7 days a week (Sydney time): 132 558 or can request a callback.
Why should I go to my lender first?
It’s always a good idea to contact your current lender and ask them to review your home loan, especially after a change in circumstances, if you’re due to come off a fixed interest rate period, or even as part of an annual financial review. Suppose they can meet your expectations with a better interest rate. In that case, you’ll save all the hassles of refinancing from the time it takes to complete the process of approving a new application to the associated fees. Your lender can also explain more about your loan features, how you can pay off your loan sooner and ensure your loan is working towards your financial goals.
How long do you have to have had a mortgage before refinancing it?
There’s no time limit on having a home loan before considering refinancing it. Still, you’d want to have a mortgage for at least 12-24 months; otherwise, the costs of refinancing outweigh the benefits, even if you’re getting a better interest rate.
5. What questions should I be asking my lender?
Whenever you talk to a lender, you need to come prepared. The more you know about rates, loans and features, and your position as a borrower, the stronger your case is to secure the best deal. That means borrowers should always ask questions when they speak to their lender that covers the following topics:
- What type of loan do you have – Owner occupier or Investor?
- What type of home loan should you consider – fixed rate mortgage vs variable interest rate?
- What’s your interest rate? Did you know you could receive a discount and other benefits if you package your loan? Remember to always look at the comparison rate as it references both interest rates and fees.
6. Are there alternatives to refinancing?
Refinancing should be the choice of last resort as it’s always best to negotiate with your current lender. Depending on your circumstances, they could find a more accessible and cost-effective solution.
Buying and selling?
Selling your current home and buying a new one doesn’t always mean you need to refinance and apply for a new loan. Portability allows you to keep your existing loan by substituting the property held against the mortgage, from your old property to your new one. You keep all the features, loan repayments, and setups in place without the hassle. You can even apply for a loan increase before porting your loan in some circumstances. With a fixed rate loan, you can use portability to keep your existing loan and have no break costs involved when switching security.
Home Loan Health Check
You should be asking your lender for a home loan review, especially if you’ve had a change in circumstances, not reviewed your loan in over 2 years, or are thinking of selling or increasing your mortgage for renovations, investing, or consolidating debts. Remember to come prepared. You'll get the most out of your conversation, ensuring the best possible home loan for your needs now and into the future.
Ask for a Home Loan Health Check
Westpac customers can get help by calling 8am-8pm, 7 days a week (Sydney time): 132 558 or can request a callback.
Things you should know
Conditions, credit criteria, fees and charges apply. Residential lending is not available for Non-Australian Resident borrowers.
This information has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information and, if necessary, seek appropriate professional advice. This includes any tax consequences arising from any promotions for investors and customers should seek independent advice on any taxation matters.
#Premier Advantage Package: Conditions of Use and $395 annual package fee applies. You must either hold or be approved for a Westpac Choice transaction account in order to qualify and continue to receive the benefits of the Premier Advantage Package. Applicants must have a Westpac Choice transaction account linked to the home loan at the time of settlement and must keep this account open for 60 days after settlement. Before deciding to acquire a Westpac Choice account, read the terms and conditions, and consider whether the product is right for you. Tax consequences may arise from this promotion for investors and customers should seek independent advice on any taxation matters.
Premier Advantage Package Conditions of Use (PDF 120KB)
^No annual credit card fees: Applies to the following credit cards when part of a Premier Advantage Package: • Low Fee Mastercard • Altitude Platinum Mastercard (including Altitude Qantas Platinum) • Altitude Black Mastercard (including Altitude Qantas Black).
Credit provided by Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714.