What is refinancing?
Learn what refinancing means, how it works in Australia, and how switching home loans could help you save money, reduce repayments or reach your financial goals sooner.
Refinancing means replacing your existing home loan with a new one, either with your current lender or a different one. It’s one of the most common ways to lower your interest rate, access equity, or restructure your loan.
Refinancing involves paying out your current home loan and replacing it with a new one. The new loan may have a different interest rate, different features (like an offset account), or a different repayment structure.
There are two types:
- Internal refinance - switching to a new loan product with your current lender
- External refinance - moving your loan to a different lender entirely
Why do people refinance their home loan?
People refinance for a range of reasons. Common motivations include:
- A lower interest rate - even a 0.5% p.a. reduction can save thousands over the life of a loan
- Better loan features - such as an offset account, redraw facility, or flexible repayment options
- Switching rate types - from variable to fixed for payment certainty, or fixed to variable for flexibility
- Debt consolidation - rolling credit cards, personal loans, or car loans into your mortgage at a lower rate (but over a longer term)
- Accessing equity - cash-out refinancing lets you borrow against your property’s increased value
- Changed circumstances - your income, family situation, or financial goals may have shifted since your original loan
When should you consider refinancing?
Refinancing may be worth considering when your current loan no longer fits your situation. Key triggers include:
- Your rate isn’t competitive - if your current rate is higher than other rates available in the market, it may be worth reviewing your home loan
- Your fixed term is ending - you’ll typically revert to a higher variable rate unless you take action
- Your property value has increased - a lower LVR may unlock better rates
- Your financial goals have changed - you may want to pay off your loan faster, access equity, or consolidate debts
- It’s been 2–3 years since you last reviewed your loan - the market moves and perhaps your loan should to
How can refinancing change your interest rate?
Your new interest rate depends on market conditions and your financial profile at the time of application.
Key factors include:
- Your LVR - lower LVR (more equity) generally means access to better rates
- Your income and serviceability - lenders reassess your ability to meet repayments
- Your credit history - a strong credit score improves the rates available to you
- Loan type - fixed rates offer certainty, while variable rates offer flexibility
Your refinanced rate may be lower, higher, or similar to your existing rate. Always compare the total cost, not just the headline rate.
What factors should you consider before refinancing?
Before refinancing, weigh the potential savings against the costs and risks. Key factors:
1. Your current interest rate
Compare your existing rate to what’s currently available. A difference of 0.25–0.50% p.a. or more may justify refinancing.
2. Break costs and exit fees
If you’re on a fixed rate, break fees can be significant - sometimes thousands of dollars. These can wipe out potential savings.
3. Upfront and ongoing fees
Application fees, valuation fees, and government registration fees all add up. Factor these into your break-even calculation.
4. Your LVR
If your LVR is above 80%, you may need to pay LMI again - even if you paid it on your original loan. LMI cannot be transferred between lenders.
5. Your serviceability
Lenders reassess your income, expenses, and debts. Your borrowing capacity may have changed since your original loan.
6. Your long-term goals
Refinancing may lower repayments, but extending your loan term increases total interest. Consider keeping your repayments the same to pay off sooner.
7. Your break-even period
Your break-even period is how long it takes for your monthly savings to recoup the cost of switching. If you’re unlikely to keep the new loan longer than this period, refinancing may not be worth it.
For example, if refinancing costs $2,000 in fees but saves you $200 per month, your break-even is 10 months.
What costs are involved in refinancing?
Refinancing involves costs that should be weighed against potential savings:
- Discharge fees - your current lender may charge to release the mortgage (typically $150–$400)
- Application or establishment fees - your new lender may charge to set up the loan
- Government registration fees - for the new mortgage and discharge of the old one (varies by state)
- Valuation fees - the new lender may require a property valuation (some provide this free)
- Break fees - if you’re exiting a fixed rate loan early, these can be substantial
At Unloan, there are no application fees, no ongoing fees, and no exit fees. Government fees may still apply.
Refinancing savings example
Say you have a $500,000 loan with 25 years remaining at 6.5% p.a. Your monthly repayment is about $3,375.
If you refinance to 6.0% p.a., your new repayment drops to about $3,220 - saving roughly $155 per month, or $1,860 per year.
Over 25 years, that 0.5% p.a. difference saves approximately $46,500 in interest. Even after accounting for switching costs, the net savings can be significant.
What is cash-out refinancing?
Cash-out refinancing lets you borrow more than your current loan balance by tapping into your property’s equity. The extra funds are added to your new loan.
Common uses include renovations, debt consolidation, or investment. However, increasing your loan means higher repayments and more interest over time.
Your LVR will also increase, which may affect the rate you’re offered. If your new LVR exceeds 80%, LMI may apply.
What are the risks of refinancing?
Refinancing doesn’t always result in savings. Consider these risks:
- Extending your loan term - resetting to 30 years can significantly increase total interest, even at a lower rate
- Fees that erode savings - break costs, LMI, and establishment fees can wipe out the benefit of a lower rate
- Losing valuable features - your current loan may have benefits (like a grandfathered rate or package discount) that you can’t replicate
- Higher repayments if borrowing more - cash-out refinancing increases your debt and monthly obligations
- Paying LMI again - if your new LVR is above 80%, you’ll need to pay LMI even if you paid it before
How does the refinancing process work?
Refinancing follows a structured process:
- Review your current loan - check your rate, remaining term, and any exit fees or break costs
- Compare alternatives - look at rates, features, and total cost (not just the headline rate)
- Calculate your break-even - work out how long it takes for savings to recoup switching costs
- Submit an application - you’ll need payslips, bank statements, ID, and details of your current loan
- Assessment and valuation - the new lender assesses your finances and values your property
- Approval and settlement - the new lender pays out your old loan and your new repayments begin
The new lender typically coordinates settlement and discharge of your old loan. The process usually takes 2–6 weeks once documents are submitted.
How does refinancing relate to LVR and borrowing power?
When you refinance, the new lender reassesses your financial position and property value. Your LVR and borrowing power directly affect the terms you’re offered.
If your property has increased in value since you bought it, your LVR may be lower, which can unlock better rates. If your LVR is above 80%, you may need to pay LMI.
If you’re happy with your current loan but need extra funds, a top-up may be simpler and cheaper. If you want a better rate or different features, refinancing is usually the better path.
What happens after refinancing?
Once refinancing is complete, your new loan terms apply and repayments begin. Your old loan is fully discharged.
It’s worth reviewing your loan annually to make sure it still suits your needs. Market conditions change, and what’s competitive today may not be in 2–3 years.
Thinking about refinancing? Unloan offers competitive variable rates with no application fees, no ongoing fees, and no exit fees*. Plus, you’ll earn an annual loyalty discount that gets better every year (up to 30 years).
Use our refinancing calculator, or explore how refinancing works with Unloan.
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, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty 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. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Unloan is a division of Commonwealth Bank of Australia, and Commonwealth Bank does not provide tax (financial) advice under the Tax Agent Services Act 2009 (Cth). You should consider seeking independent tax advice from a registered tax agent, accountant or adviser before you make any decisions based on this information.
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, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty 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. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions are found on our Unloan Terms and Conditions. Modified Terms and Conditions will be set out in our Notice of Variation Agreement, if you are approved. 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.
