How to Compare Home Loan Refinancing Options for Maximum Savings

Refinancing your home loan can be a powerful strategy to reduce your monthly repayments, secure a better interest rate, or unlock equity for other financial goals. However, with so many lenders and products available in Australia, comparing refinancing options can feel overwhelming. Understanding the key factors to evaluate and using a methodical approach can help you maximise your savings and ensure you make the right choice for your financial circumstances.

This comprehensive guide explains how to compare home loan refinancing options in an Australian context and highlights practical steps to help you save money.

What Is Home Loan Refinancing?

Refinancing involves replacing your current home loan with a new one—either with your existing lender or a different lender. The goal of refinancing can vary depending on your needs, but common objectives include:

• Securing a lower interest rate.
• Reducing monthly repayments.
• Accessing home equity for renovations or investments.
• Switching to a different loan structure (e.g., fixed to variable or vice versa).
• Consolidating debt into your mortgage.

By refinancing, borrowers can potentially save thousands of dollars over the life of their loan, provided they select the right refinancing option.

When Should You Consider Refinancing?

Refinancing can be a smart financial move in the following situations:

1. Interest Rate Drops: If market rates have fallen since you took out your loan, refinancing to a lower rate can reduce your monthly repayments and total interest costs.
2. Improved Financial Position: If your credit score, income, or loan-to-value ratio (LVR) has improved, you may qualify for a better rate.
3. Loan Features No Longer Suit: If your current loan lacks features like an offset account or redraw facility, refinancing to a more flexible product can improve your financial management.
4. End of Fixed Term: When a fixed-rate term ends, refinancing gives you an opportunity to shop around for better variable or fixed-rate options.
5. Accessing Equity: If your property has increased in value, refinancing allows you to tap into your equity for renovations, investments, or other needs.

How to Compare Refinancing Options

Comparing refinancing options requires a holistic approach that considers interest rates, fees, loan features, and long-term savings. Here’s how to assess your options effectively:

1. Interest Rates

The interest rate is a critical factor when refinancing, as it directly affects your monthly repayments and total loan cost.

• Advertised Rate vs Comparison Rate: Always consider the comparison rate, which includes fees and charges associated with the loan, providing a clearer picture of the total cost.
• Fixed vs Variable Rates:
  • Fixed rates offer stability, protecting you from rate hikes during the fixed term.
  • Variable rates offer flexibility and may decrease if the Reserve Bank of Australia (RBA) lowers the cash rate.

2. Fees and Charges

Refinancing comes with costs that can offset your savings if not carefully evaluated. Common fees include:

• Discharge Fees: Charged by your current lender to close your existing loan (typically AUD 200–500).
• Application Fees: Charged by the new lender to process your loan (usually AUD 500–800).
• Valuation Fees: Covers the cost of valuing your property (AUD 200–600).
• Lenders Mortgage Insurance (LMI): If your new loan exceeds 80% of the property’s value, you may need to pay LMI, even if you previously avoided it.

Tip: Use online refinancing calculators to estimate whether the savings from a lower rate outweigh the upfront costs.

3. Loan Features

Evaluate whether the loan includes features that align with your financial goals, such as:

• Offset Accounts: Reduces the interest charged by offsetting your loan balance with your savings.
• Redraw Facilities: Allows you to access extra repayments made on your loan.
• Flexibility for Extra Repayments: Enables faster loan repayment without penalties.
• Split Loan Options: Allows you to divide your loan into fixed and variable portions.

4. Loan Terms

Refinancing resets your loan term, so consider the impact of extending or shortening it:

• Extending the Term: Reduces monthly repayments but increases total interest paid.
• Shortening the Term: Increases monthly repayments but reduces total interest costs.

Example:

• Loan amount: AUD 500,000
• Interest rate: 5%
• Original term: 25 years

Remaining Term	Monthly Repayment	Total Interest Paid
20 years	AUD 3,299	AUD 291,761
25 years (reset)	AUD 2,778	AUD 333,278

5. Lender Reputation

Research potential lenders for reliability, customer service, and transparency. Read reviews or seek recommendations from a mortgage broker to identify lenders with a strong track record.

6. Special Offers

Some lenders provide incentives, such as cashback offers, fee waivers, or discounted rates for new customers. While these can be appealing, weigh them against the overall loan cost to ensure they’re worth it.

Steps to Maximise Savings When Refinancing

Step 1: Review Your Current Loan

Start by assessing your existing loan:

• Current interest rate and monthly repayments.
• Remaining loan term.
• Features and limitations (e.g., offset accounts, extra repayments).
• Exit fees or discharge costs.

Step 2: Set Refinancing Goals

Identify your primary objectives for refinancing. For example:

• Lower monthly repayments.
• Reduced total loan cost.
• Access to equity or improved loan features.

Step 3: Compare Multiple Lenders

Use online comparison tools or consult a mortgage broker to compare interest rates, fees, and loan features across various lenders.

Step 4: Calculate Potential Savings

Determine whether refinancing will save you money by considering:

• Savings from a lower interest rate.
• Upfront and ongoing costs of the new loan.
• Long-term financial impact.

Example:

• Current loan: AUD 500,000 at 5% (25 years remaining).
• New loan: AUD 500,000 at 4.5% (25 years).
• Monthly repayment savings: AUD 140.
• Annual saving: AUD 1,680.
• Upfront costs (e.g., fees): AUD 2,000.
• Break-even point: ~15 months.

Step 5: Check Eligibility

Ensure you meet the new lender’s eligibility requirements, such as a strong credit score, stable income, and acceptable LVR (typically ≤80%).

Step 6: Submit Your Application

Once you’ve chosen a lender, gather the necessary documents, such as:

• Recent payslips and tax returns.
• Current loan statements.
• Proof of identity and property details.

Step 7: Finalise the Refinancing Process

Your new lender will coordinate with your existing lender to discharge the old loan and settle the new one. Ensure all fees are accounted for and verify that the new loan terms align with your expectations.

Real-World Example of Refinancing

Scenario:

Anna has a home loan of AUD 600,000 with a variable interest rate of 5.5% and 25 years remaining. She wants to reduce her monthly repayments and is considering refinancing.

Comparison:

• Current Loan:
  • Monthly repayment: AUD 3,411
  • Total interest remaining: AUD 423,338
• Refinanced Loan (4.8% interest rate, 25 years):
  • Monthly repayment: AUD 3,139
  • Total interest: AUD 368,835

Outcome:

By refinancing, Anna saves AUD 272 monthly and AUD 54,503 in total interest. After accounting for AUD 2,000 in refinancing fees, her break-even point is approximately 8 months.

When Refinancing Might Not Be Worth It

Refinancing may not be beneficial in the following situations:

1. High Exit Fees: If your current loan has substantial discharge costs or break fees (common with fixed loans), the savings may not justify refinancing.
2. Short Loan Term Remaining: If you’re close to paying off your mortgage, the costs of refinancing may outweigh the benefits.
3. Minimal Rate Reduction: A small difference in rates might not deliver significant savings, especially if upfront fees are high.
4. Risk of Higher LVR: If property values have fallen, refinancing could push your LVR above 80%, triggering LMI.

Tips for Refinancing Successfully

1. Monitor Market Rates: Stay updated on interest rate trends and lender offers.
2. Boost Your Credit Score: Pay off debts and avoid late payments to qualify for better rates.
3. Build Equity: Aim for an LVR of 80% or lower to secure competitive rates and avoid LMI.
4. Consult a Mortgage Broker: Brokers can provide tailored advice and negotiate with lenders on your behalf.
5. Don’t Chase Offers Blindly: Evaluate cashback deals and special offers carefully to ensure they align with your financial goals.

 

Refinancing your home loan is a valuable opportunity to reduce costs, access better terms, and improve your financial position. By comparing interest rates, fees, features, and long-term savings, Australian borrowers can maximise the benefits of refinancing while avoiding unnecessary expenses.

Taking the time to assess your current loan, set clear goals, and research potential lenders will help you make informed decisions. Whether you’re seeking lower repayments, unlocking equity, or switching loan types, a strategic approach to refinancing can save you thousands of dollars and help you achieve greater financial security.