What’s the difference between a home loan interest rate and a refinanced interest rate?

We explain the key difference between an initial home loan rate and a refinanced interest rate.

When it comes to choosing the best home loan, one of the key factors to consider is the interest rate. Your home loan interest rate can mean the difference between big savings or forking out a whole lot of extra cash over the life of your loan. Two terms that you might have come across when doing your research are initial home loan interest rates and refinanced interest rates, but you might not be familiar with what they actually refer to.  

What is an initial home loan interest rate?

An initial home loan interest rate, also known as the original rate or purchase rate, is the interest rate you agree to when you first take out a mortgage to buy a home. The initial interest rate is based on a number of factors, including the:

  • Cash rate set by the Reserve Bank of Australia (RBA)
  • Term of the loan
  • Loan-to-value ratio (LVR) and  
  • Your credit score among other things.  

Fixed rate home loans

If you take out a fixed-rate home loan, the initial interest rate will be locked in for an agreed-upon term. This could be anywhere from one to five years.  

Variable rate home loans

If you apply for a variable home loan, the interest rate can change at any time. This means that your repayments are more likely to fluctuate based on factors such as changes to the official cash rate and funding costs. Learn more about how interest rates are determined.  

What are refinancing interest rates?

A refinanced interest rate is the interest rate you secure when you refinance your home loan. In short, refinancing is the process of replacing your current mortgage with a new one, often with more favourable terms, lower interest rates or different loan terms.  

When it comes time to refinance, your new interest rate is based on a number of factors. Your refinancing rate can be lower or higher than your initial home loan interest rate, depending on these factors including:

  • Your current financial situation
  • Your credit score  
  • Market conditions  

When should you consider refinancing?

The best time to refinance really depends on your individual situation – these include:

  • You’re on the hunt for a more competitive interest rate,  
  • You’re looking to access the equity in your home,
  • You want to reduce the loan term or  
  • You’re fixed rate is coming to an end
  • You want to consolidate your debt
  • You want to access better features with a different lender or home loan

In the right circumstances, refinancing your home loan can help you save over the life of your home loan. Learn more about refinancing here and if it’s right for you here.

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The article does not have regard for the financial situation or needs of any reader and must not be relied upon as financial product advice. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on this, consider the appropriateness to your circumstances.

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval; satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000.

^ Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. This discount is applied to each loan that you have with Unloan. If you have multiple loans (e.g. one investor and one live-in loan), they will each have a discount calculated based on when you settled each loan. Unloan may withdraw this discount at any time.

There are no fees from Unloan. However, there are some mandatory Government costs depending on your state when switching your home loan. For convenience, Unloan adds this amount to the loan balance on settlement.

* Other third-party fees may apply. Government charges may apply. Your other lender may charge an exit fee when refinancing.

Related articles

What is a redraw facility?
What does the term interest mean?
What are the features and benefits of a redraw facility?

Calculations are not a loan approval. Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions will be set out in our loan offer, if an offer is made.

^Rates shown are inclusive of a 0.01% p.a. discount off our reference rate. On each anniversary of your loan’s settlement date, you will receive an additional discount of 0.01% per annum, up to a maximum discount of 0.30% per annum. For purchase loans with a Loan to Value Ratio (LVR) between 80.01% - 90% LVR, a lenders mortgage insurance (LMI) premium and higher interest rate apply. In some cases depending on the property’s location or type, LMI may also be required for LVR between 70.01% and 80%.

*Comparison rate is calculated on a $150,000 secured loan over a 25 year term. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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