how to refinance housing loan

It can be a wise decision when you refinance your housing loan. Do you know that people in Australia save $2500 annually when they refinance their housing loans? Basically, in refinancing, you get another loan that replaces the current one thus enabling you to enjoy low interest rates as well as reduced monthly repayments among other things. This guide will take you through everything you need to know about refinancing your housing loan in Australia, from how it works to what you need to do after getting the new one.

Understanding Housing Loan Refinancing

What is Refinancing?

Refinancing means getting a fresh mortgage to replace the current one. This fresh loan eliminates the old one so you benefit from improved conditions.

Why Refinance?

Refinancing can help you achieve several financial goals:

  • Lower Interest Rates: Reduce the amount you pay in interest over the life of the loan.
  • Shorten Loan Term: Pay off your mortgage faster and save on interest.
  • Access Equity: Use your home’s equity for other expenses, such as home renovations or paying off debt.
  • Switch Loan Types: Move from a variable-rate to a fixed-rate mortgage for more stability.

Examples and Scenarios

  • A homeowner with a 4.5% interest rate refinances to a 3.0% rate, reducing monthly payments and saving thousands over the loan term.
  • A family switches from a 30-year to a 15-year mortgage to pay off their home sooner and save on interest.

Evaluating Your Current Loan Situation

Assessing Your Current Mortgage

Review your current mortgage terms, including interest rate, remaining loan term, and monthly payments. Understanding your loan type (fixed vs. variable) is crucial.

Calculating Potential Savings

Use online calculators to estimate your potential savings by comparing your current loan terms with new ones. Consider factors such as interest rates, loan terms, and fees.

Preparing for Refinancing

Checking Your Credit Score

A good credit score is essential for securing favourable refinancing terms. Check your credit report and take steps to improve your score if necessary.

Gathering Financial Documents

Prepare necessary documents, including:

  • Income proof (pay slips, tax returns)
  • Current loan details
  • Bank statements

Assessing Home Equity

Determine your home’s current value to understand your equity position. Higher equity can lead to better refinancing options.

Exploring Refinancing Options

Types of Refinancing

  • Rate-and-term refinance: Adjusts the interest rate and/or loan term without taking additional cash out.
  • Cash-out refinance: Allows you to take out a portion of your home’s equity in cash.
  • Cash-in refinance: This involves paying down the loan balance to reduce the amount owed.

Choosing the Right Lender

Compare lenders based on:

  • Interest rates
  • Fees
  • Reputation and customer service

Fixed vs. Variable Rate

  • Fixed-rate mortgages: Predictable payments but potentially higher initial rates.
  • Variable-rate mortgages: Lower initial rates but potential for rate increases.

how to refinance housing loan

The Refinancing Process

Applying for Refinancing

Follow these steps to apply:

  • Shop for lenders and get quotes.
  • Submit your application with the required documents.
  • Await loan approval.

Appraisal and Underwriting

An appraisal will determine your home’s value. Underwriting involves verifying your financial information.

Closing the Loan

Understand and prepare for closing costs. Complete the final steps to secure your new loan.

Post-Refinancing Tips

Managing Your New Loan

Set up automatic payments and monitor your statements to stay on track.

Financial Planning

Incorporate your new mortgage into your broader financial goals. Maintain good credit and financial health to maximise benefits.

Refinancing your housing loan can provide significant financial benefits. By assessing your current mortgage, preparing for refinancing, and choosing the right lender, you can achieve lower payments, better terms, or access your home’s equity. Consider your long-term financial goals and take the next steps towards refinancing your housing loan.

Frequently Asked Questions

1. What is the best time to refinance a housing loan?

The best time to refinance is when interest rates are lower than your current rate, and your credit score is strong.

2. Are there any risks involved in refinancing?

Yes, potential risks include paying high closing costs and extending your loan term, which could increase the overall interest paid.

3. How much does it cost to refinance a mortgage?

Refinancing costs can range from 2% to 5% of the loan amount, including application fees, appraisal fees, and closing costs.

4. Can I refinance with bad credit?

It’s possible, but you may face higher interest rates and limited options. Improving your credit score before refinancing is advisable.

5. How long does the refinancing process take?

The process typically takes 30 to 45 days, but it can vary depending on the lender and your financial situation.


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