What it means to refinance your mortgage

If your mortgage isn’t giving you what you need, don’t feel bad about changing it. Regularly reviewing your mortgage to make sure it offers the features you need is just part of being smart with your finances.

A rapidly changing market means there may be another home loan out there that works better for you. It’s worth looking at what your current lender is now offering because there might be a new home loan with more flexible features or add-ons that can help you meet your goals.

If you do find the ‘other mortgage’, you could think about refinancing. 

What does refinancing your home loan mean

Refinancing means moving your home loan from one bank to another. It’s not a loan transfer, which involves swapping to a different type of home loan, changing your repayments, or splitting and combining loans, all while remaining with the same lender.

Essentially, it’s considered a whole new loan to the bank. Because you’re not buying a new home, the process doesn’t involve another vendor or settlement agent, although you do still need to get the property valued.

Consider your current lender before you refinance, as they might have another home loan that can help you reach your goals.

How do you refinance your home loan?

The first step is often to talk to a Lending Specialist. They can outline what’s involved and guide you through the steps in more detail and be on call when you need them.

If you decide to refinance, the process is like applying for your first home loan. You can begin the process online or with a home loan specialist.

Although it’s not a new loan for you, it will be a new loan for the lender you choose. A valuation of your property will be carried out and you’ll usually need to give them statements on your current home loan and a pay out figure as well. This is the amount remaining on the loan that will be paid out to your current lender.

You’ll also need to organise a discharge with your original lender. This can take a few weeks so should be organised early. A settlement date will be organised, which is arranged between the two lenders to transfer the mortgage title.

Is there any reason I can’t refinance?

There are a few factors that could mean you won’t be able to refinance your home loan:

If you don’t have a high enough Loan to Value Ratio (LVR) there could be insufficient security against the new loan and a lender might not approve it.  This would happen if the property value has decreased or a new valuation assigns it at a lower value. In this case, it’s worth talking to your lender to find out your options, such as paying LMI.

You may also be outside the new bank’s lending policy, or you may not meet the bank’s credit assessment criteria.

You can begin the refinancing process online, with a Home Loan Specialist or with a Broker.

The costs to refinancing

Discharge costs

Banks will usually charge a fee for you to discharge your mortgage (this is when the bank's name is removed from your property title). The cost varies from bank to bank and usually takes a few weeks to be processed.

Lenders Mortgage Insurance 

When you refinance your mortgage and your new bank is lending you over 80% of your property's value, you may need to pay Lenders Mortgage Insurance (or LMI).  

Breaking a fixed rate loan 

If you are currently on a fixed rate loan at your bank, you may incur a charge to break that term early. The cost depends on how long is left to run on your fixed term and what your fixed interest rate is. Your current bank will be able to provide an estimated break cost. 

Find a home loan to suit you. 

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See how an expert can help you

Get in touch with one of our Home Loan Specialists, and they’ll respond within one business day.

Things you should know

The information contained in this article is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this article without first obtaining specific professional advice. To the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48123123124 AFSL / Australian credit licence 234945, its related bodies corporate, employees and contractors accepts no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this article.