How to refinance your home loan

If you’re thinking about refinancing your home loan, this step-by-step guide shows you what to expect and how to navigate the process.

With interest rates at an all-time low across Australia, record numbers of homeowners are using the opportunity to find more cost-effective or flexible deals on their home loans¹. What, exactly, does it mean to refinance a property, and when is it beneficial?

Refinancing can mean talking to your current provider to renegotiate your arrangement with them (an internal refinance), but it often refers to switching to a different lender to secure a better deal (an external refinance).

There are plenty of reasons to consider refinancing, from saving money by reducing your monthly repayments, to decreasing the term of your loan, to accessing loan features that better suit your needs, and consolidating other debts (such as personal loans or car loans) at the same lower rate.

Start by using a refinance calculator to get an idea of what you could save by refinancing. Then crunch the numbers into a home loan comparison calculator to compare your current loan to other example loans, to see what might work best for you.

It’s also a good idea to consider whether the financial benefits of reworking the loan outweigh any potential fees and costs.

“There are plenty of reasons to consider refinancing, from saving money to consolidating other debts at the same lower rate.”

Like to know more?

Yes, a large part of refinancing is about saving money in the long term by getting a better rate on your home loan. But before you make the change, it’s a good idea to confirm you’re getting everything else you want, too. These are some of the home loan features that AMP offers depending on the product; other lenders might offer similar or different options:

• The facility to make additional payments without penalty to your variable-rate loan
• Multiple loan splits (between fixed and variable) at no additional cost
• The ability to redraw on variable home loans
• Free online and mobile banking
• No annual package fees
• No monthly account management fees
• Choose how you repay by the loan with principal and interest, or interest only repayments
• Make additional repayments on loans
• Financial assistance in valuation fees

It’s best to speak to the lender to determine which features are available to you.

Understanding the fees and costs of refinancing your home loan

Before you get too caught up in comparison-shopping, also be aware that you might encounter both short-term and ongoing fees when refinancing your home loan. These can include:

• Early exit/discharge fees: These are paid to your current lender to pay out your existing loan and prepare any relevant documentation. Fees vary between lenders and Australian states, and they might be waived if you refinance within a single lender. It’s best to talk to your current lender to determine exact figures.
• Break costs: Associated with leaving a fixed-interest-rate home loan early, they are designed to compensate your existing lender for any losses.
• Settlement/application fees: Fees charged by your new lender to process the application and set up your new home loan.
• Valuation fees: To cover any expenses your new lender incurs when re-valuing your property, if required.
• Lenders Mortgage Insurance (LMI): Your new lender might charge LMI (regardless of whether you paid it to your existing lender) if you have less than 20% equity in your property. This is designed to ensure your lender doesn’t lose money if you default on your mortgage. This article has more information about Lenders Mortgage Insurance.
• Government fees: State governments may charge a mortgage registration fee.
• Ongoing fees: Some lenders charge an annual fee to manage your home loan. Check with your provider to determine any ongoing fees and charges.

If you’ve compared home loan offerings on the market, run the sums, and concluded that the benefits of refinancing outweigh the costs, the next step is to put in an application with a new lender.

A document checklist for refinancing your mortgage

When it comes to refinancing your home loan with a new lender, it pays to be prepared. A lender will generally want to see:

• Identification: Driver’s license, passport, birth certificate.
• Proof of income: Latest payslips, group certificates, bonus/commission statements, employment contracts and tax returns if you have an employer; Business Activity Statements and tax returns if you’re self-employed; bank/government statements if you’re on a pension or receive government benefits.
• Current bank statements: Relating to your existing home loan.
• Personal living statements: For credit cards, personal loans, car loans, savings.
• Records of assets: Investment properties, shares, superannuation.

You’ll also need to complete an application form, which will require some of the above details as well as additional information about your dependents, assets and liabilities, the purpose of the loan, the loan amount you’re seeking and your monthly expenditures. Then you’ll need to supply specifics about the property itself, including the title deeds.

How to exit your existing home loan

By this point, you’ve already:

1. Worked out what you want from your home loan
2. Compared home loan products and offers on the market
3. Understood the costs involved with switching
4. Prepared all your documentation

The next step is to complete a Mortgage Discharge Authority Form with your current lender – most lenders have these online. This will ask you about your property, the key people involved, and the loan account details. It will also provide you with details on lender fees and any government charges you will face when you finalise your exit application.

Exiting your current home loan and applying for a new one can be a time-consuming process. An AMP home loan specialist can take the stress out of refinancing – and speed up the process of application – by liaising with your current lender to establish your exit fees, complete your discharge form and secure your property’s title deeds.

_{¹ Reserve Bank of Australia (September 2020): Insights from the new economic and financial statistics collection.}