Everything you need to know about refinancing your home loan

Switching your home loan can be a great way to save money but knowing when and how to refinance can be crucial. Here’s a guide to help you understand if refinancing makes sense for you, and how to go about it.

With official interest rates rising repeatedly and driving up home loan rates, mortgage refinancing has surged to record levels as Australian homeowners look for a way to manage their financial situation. Total refinancing for owner occupiers and investors in January alone amounted $18.6 billion, according to the Australian Bureau of Statistics.[1]

If you are facing an escalation of home loan costs due to rising interest rates, you may be considering whether to switch. Here’s a guide to help you understand if refinancing makes sense for you, and how to go about it.

What is a home loan refinance?

In simple terms, refinancing involves moving from one loan to another, either with your current lender or a new one.  The new loan would typically have a lower rate of interest or offer better features.

Why would I refinance?

You may want to refinance because there has been a change in your personal circumstances, or because you simply want a better deal on your home loan.

Refinancing can be an effective way of managing your money. It may allow you to secure a better interest rate on your mortgage, consolidate debts, pay off a mortgage faster, change your loan type (such as from fixed to floating) or unlock equity in your home.

It may also be that you switch in order to change lenders. When we first take out a home loan, few of us know what we’re going to get. Refinancing can allow you to find a lender with lower interest rates or better customer service. Police Bank offers both.

How does refinancing work?

Once you’ve decided to switch, the process is usually relatively straightforward.

After you’ve chosen a loan, submitted your application and been approved, your new lender will probably handle the rest.

They will likely want to see proof of your income, living expenses, and a few of your latest loan statements.  They’ll likely also organise to have your home valued before you secure your new mortgage.

Assuming it all goes smoothly, your new and old lenders will arrange for your new loan to pay out your existing loan. From here, you start making repayments against your new loan.

6 factors to consider before you switch

Before you refinance, work out whether you’ll save money by refinancing your mortgage. To help with your decision, consider these factors, to ensure the benefits outweigh the costs:

Will your lender give you a better deal? Refinancing doesn’t have to involve moving to another lender. Ask your lender if they can provide a better deal to keep you as a customer.

Are there better offers on the market? Consider several lenders and compare their interest rates and other benefits. Once you have a short list of potential loans, it’s important to also look at the costs involved for each.

What are the costs? The cost of refinancing your home loan often depends on the arrangement you have with your existing lender and what your new lender is offering. For example, some lenders charge fees for ending a mortgage, which have to be balanced against the application and ongoing fees from the new lender.  

Other costs include the fee for valuing your property, and if you’re borrowing more than 80% of the value of your home, you’re also legally required to pay Lender’s Mortgage Insurance.

What are the savings? Sometimes the savings you can make by switching lenders will offset the above fees. In other words, the long-term gains can outweigh the short-term costs. Using a mortgage calculator can help to determine how much you could save by switching to a lower rate loan.

Police Bank also has a cash back offer of up to $4,000†, which can help to cover some of the costs we’ve mentioned, such as exit fees. There are no monthly or annual fees, and a free offset account is available on variable rate loans, so you can pay your salary direct and save on interest costs. NSW Police members receive even further benefits by getting their pay direct debited a day early, saving even more.

Speak to an expert

If you do your research, get organised, and know the costs involved, refinancing can be a smart way to save money or manage your finances. If you’re not quite sure about any aspect of refinancing or how it may work in your circumstances, you can speak to a mortgage broker or someone on our team. We’re here to help make the process easy.

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[1] ABS, Lending Indicators, January 2023 https://www.abs.gov.au/statistics/economy/finance/lending-indicators/latest-release

Refinance Cashback Terms & Conditions

†To be eligible for the Police Bank cashback offer, applicants must refinance an existing Owner Occupied or Investment home loan of $300,000 or more from another financial institution (other than Border Bank and Bank of Heritage Isle) to Police Bank. The offer is only available to applicants who apply and are approved from 22/02/2023 – 03/05/2023 (offer period) eligible loans must settle within 90 days of application. The cashback is only available once to each individual or joint applicant(s). The cashback amount will be credited to either the primary transaction account for single borrowers or a joint account with the primary borrower within 1 month of settlement. If multiple loans apply all loans must be funded before the total cashback is assessed and paid.The final cashback amount is dependent on total loan size funded. Loans greater than or equal to $300,000 and less than or equal to $499,999 are eligible for $1500 cashback. Loans greater than or equal to $500,000 and less than or equal to $749,999 are eligible for $3000 cashback. Loans greater than or equal to $750,000 are eligible for $4000 cashback. This offer is not available for new purchase home loans or in conjunction with any other offer, bonus or discount. We reserve the right to withdraw this offer and/or alter the offer period at any time. Effective date: 22nd of February, 2023.