Refinance your home loan

When you refinance your home loan, you take out a new loan to replace the old one. Your current home loan is paid out by the new loan and you repay the new home loan over time. You can refinance with your current lender or switch to a new lender.

Refinancing might make sense for you if your situation has changed, for example, if you have changed jobs or started a family. You might also want to think about refinancing if the market conditions have changed, for example if interest rates have gone up or down. In these situations, the home loan that you have may no longer be the best fit for your circumstances and refinancing could help you find a home loan that better meets your needs.

If you’re thinking of refinancing your home loan, the first step is to review your current loan. Make sure you know the rate you’re paying, any costs associated with refinancing and the terms of your home loan.

Next, compare different home loans to see if you can find a better deal than what you’ve got, or a different product which better meets your needs. You could also speak with your current lender to see if you could access any refinance options with them, adjust your current loan to help you manage your repayments better, or benefit from other features that they offer. 

Keep your financial priorities in mind as you evaluate your options. It’s not always about the lowest rate. Consider the whole loan package, including features like offset accounts and the ability make additional repayments, to make sure you’re getting the home loan that best meets your needs.  Don’t forget to compare fees and charges as well.

The time it takes to complete a refinance will depend on things like the changes you are making to your loan and whether you’re changing your lender.  

Check out our step-by-step guide on how to refinance a home loan for more information.  

You don’t have to refinance your loan, and should only think about doing so if you’re satisfied that making changes to your loan is a good move for you. So there isn’t a set timetable for when you should refinance your home loan. If you do decide to refinance, it should be because refinancing will get you a home loan that better meets your needs.

Common reasons for refinancing include:

1. If you believe a better interest rate is available. If the market situation has changed and interest rates now are lower than when you drew down your home loan, refinancing your home loan may reduce the amount of interest you pay.

2. When your equity has increased. If your property has increased in value, the equity in your home may have increased too. You may be able to use the increased equity to negotiate better interest rates or loan terms. You may also be able to borrow against that equity to fund renovations, investments or other large expenses.

3. When your fixed loan home term or interest only term is expiring. When your fixed rate home loan term ends, your home loan usually switches to the standard variable interest rate, which may or may not be the best deal for you. If your fixed term is coming to an end, it may be a good time to review your home loan and explore your options.

4. If you’ve consistently been making repayments. This may put you in a good position to negotiate a better deal with your lender.

5. When you want to consolidate debt. If you have multiple loans or debts that have different interest rates, you may want to look into consolidating all your debts into your home loan. Home loan interest rates are generally lower than credit card or personal loan interest rates, and having just one repayment can make it easier to manage your budget.

The amount of equity you have in your home is the difference between the value of your property and the amount owing on your home loan. For example, if your property is worth $750,000 and you have $250,000 owing on your home loan, then you have $500,000 equity.

Many home loans will fund up to 95% of the value of your home, which means you’ll need a minimum of 5% equity to refinance. However, if you have equity which is less than a certain level (commonly 20%), you might have to pay Lenders Mortgage Insurance (LMI). LMI is insurance you pay for, but which protects the bank (not you) if you default on your loan and the money from selling your security property is not enough to repay your loan. If you have less than the required level of equity, you should talk to your lender about the cost of LMI when deciding whether or not to refinance.

As lenders use the amount of equity to assess risk, generally the more equity you have, the lower the risk of lending to you and the stronger your position.

Learn more about equity with our guide to understanding equity.

There’s no limit to how many times you can refinance your home loan. However, you might want to check if any waiting periods apply to your current loan, or if there are any fees or charges associated with ending or changing your existing loan.

The more important consideration is whether or not it makes sense to keep refinancing when you add up all the costs, such as early repayment costs (which can be substantial), loan approval fees and legal fees. Make sure that any savings you get from refinancing (such as lower repayments) will more than cover the costs of refinancing.

Let's put it this way: if you choose interest only, the minimum payments of your loan will be lower during the interest only period because you are not required to repay any of the loan principal. You will have to repay the principal down the track and so you may end up paying more over the life of your loan. There may be additional restrictions on the amount you can borrow or loan type you can select if you choose to pay interest only. Choosing to repay principal and interest means that, with each repayment, you're paying off interest charges as well as some of the loan principal.

Fixed home loan rates mean the interest rates on your home loan are locked in for a set period. Rate changes will not affect you and your repayments will remain the same during the fixed rate term. Fixed rate home loans provide certainty and stability. However, you may be charged costs if you change any of the terms of the loan, for example, make additional repayments above a permitted limit.

Variable home loan rates can change from time to time. This is great if interest rates go down but your budget would need to cover the possibility of rates going up as well. Variable rate home loans offer greater flexibility because you can make additional repayments and redraw, pay off your loan early or take advantage of an offset account.

As both fixed and variable rate loans have pros and cons, split loans are a way to get the best of both worlds. For example, you could split a $400,000 loan 50/50, with half in an ANZ Fixed Loan and the other half in an ANZ Standard Variable Loan. 

You can split your loan into whatever ratio of fixed and variable suits you.

A comparison rate is designed to help you work out the total cost of a home loan by building the known costs like up-front and ongoing fees into that rate. It doesn’t include things like government charges, redraw fees or fee waivers. 

You can use comparison rates to help you compare the cost of different home loans with similar features. When deciding which home loan is right for you, it’s important to think about what features each home loan offers, and how much these matter to you. Keep in mind that you may not necessarily pay the comparison rate that is advertised for your loan type.  This is because, for example, you may not pay all the fees and charges which the comparison rate includes.