Australians are overpaying on their home loans by thousands of dollars per year—simply because they haven't reviewed their rate in 3+ years. Banks don't reward loyalty; they quietly raise rates for existing customers while offering their best rates to new borrowers.
This guide shows you exactly when to refinance, how much you'll save, what the process involves, and insider tips to maximise your savings.
What Is Home Loan Refinancing?
Refinancing means replacing your existing home loan with a new one—usually from a different lender—to get a better interest rate, access equity, consolidate debts, or improve loan features.
Why refinance?
- Lower interest rate: Save $2,000-$10,000+/year by switching to a more competitive rate
- Access equity: Tap into your home's increased value for renovations, investments, or debt consolidation
- Consolidate debts: Roll credit cards, personal loans, and car loans into your home loan at 6-7% instead of 15-25%
- Switch loan type: Move from interest-only to principal & interest, or from variable to fixed
- Remove a partner: After separation or divorce, refinance to remove an ex-partner from the loan
When Should You Refinance?
1. Your Fixed Rate Is Ending
If you locked in a fixed rate 2-4 years ago, your fixed term is likely ending soon. When it expires, lenders typically roll you onto a much higher variable rate (often 0.5-2% higher than competitive rates).
Example: Fixed at 2.5% p.a., rolling onto 6.5% variable when you could refinance to 5.5% with another lender.
Tip: Refinance 3-6 months before your fixed term ends to avoid the rate hike.
2. Interest Rates Have Dropped
If the RBA has cut the cash rate or lender competition has driven rates down, your existing rate may be 0.5-2% higher than what's available now.
Example: You're on 6.5% p.a., but new customers get 5.5% p.a. On a $500,000 loan, that's $5,000/year you're overpaying.
Tip: Check comparison sites (Canstar, Finder, RateCity) every 6-12 months to see current rates.
3. Your Lender Raised Your Rate
Banks often raise rates for existing customers without telling them. If you haven't reviewed your rate in 3+ years, you've likely been hit with multiple increases.
Tip: Check your latest home loan statement. Compare your rate to what the same bank offers new customers. If yours is 0.5%+ higher, refinance.
4. You Want to Access Equity
If your property has increased in value, you can refinance to access equity for:
- Renovations: Kitchen, bathroom, extension
- Investment property deposit: Buy a second property
- Debt consolidation: Pay off credit cards, personal loans, car loans
- Business funding: Invest in your business
Example: You bought for $500,000 with a $400,000 loan. Property is now worth $700,000, loan balance is $350,000. You have $350,000 in equity. Refinance to access $100,000 for renovations at 6% p.a. instead of a personal loan at 12% p.a.
5. You Have High-Interest Debt
If you're carrying credit card debt at 20% p.a. or personal loans at 12% p.a., consolidating into your home loan at 6% p.a. saves thousands per year.
Example:
- Credit cards: $30,000 at 20% p.a. = $6,000/year interest
- Consolidate into home loan: $30,000 at 6% p.a. = $1,800/year interest
- Annual saving: $4,200
6. You've Been with the Same Lender 3+ Years
Banks don't reward loyalty. After 3 years, you're almost certainly paying more than new customers.
Loyalty tax example:
- Your rate: 6.5% p.a. (been with the bank for 5 years)
- New customer rate (same bank): 5.8% p.a.
- You're overpaying by 0.7% = $3,500/year on a $500,000 loan
Tip: Review your rate annually. Refinance if you find a rate 0.3%+ lower elsewhere.
How Much Can You Save by Refinancing?
Scenario 1: Switching from 6.5% to 5.5%
Loan amount: $500,000 Term: 30 years
| Interest Rate | Monthly Payment | Total Interest (30 years) | |---------------|-----------------|---------------------------| | 6.5% p.a. | $3,160 | $637,600 | | 5.5% p.a. | $2,838 | $521,680 |
Monthly saving: $322 Annual saving: $3,864 Lifetime saving: $115,920
Yes, over $100K in savings just by refinancing to a 1% lower rate.
Scenario 2: Consolidating $40K in Debts
Existing debts:
- Credit card 1: $15,000 at 20% p.a. ($3,000/year interest)
- Credit card 2: $10,000 at 18% p.a. ($1,800/year interest)
- Car loan: $15,000 at 10% p.a. ($1,500/year interest)
- Total interest: $6,300/year
After refinancing:
- $40,000 added to home loan at 6% p.a. = $2,400/year interest
- Annual saving: $3,900
Plus: One monthly payment instead of three, easier budgeting, and faster debt payoff.
What Are the Costs of Refinancing?
Refinancing isn't free—but the savings far outweigh the costs if done right.
Typical Costs:
- Discharge fee (current lender): $150-$400
- Application fee (new lender): $0-$600 (often waived)
- Valuation fee: $150-$300 (sometimes waived)
- Legal fees: $200-$500 (for complex refinances or commercial property)
- Government fees: Varies by state (some states charge transfer fees)
Total cost: $500-$2,000 for most refinances
Break-even example:
- Total refinance cost: $1,000
- Monthly saving from lower rate: $300
- Break-even time: 3.3 months
After 3.3 months, it's pure savings forever.
Tip: NIK Finance brokers negotiate with lenders to waive application and valuation fees wherever possible, reducing your upfront costs.
The Refinancing Process (Step-by-Step)
Step 1: Check Your Current Rate & Loan Balance
Log into your online banking and find:
- Your current interest rate
- Your loan balance
- Whether you're on fixed or variable
- Any exit fees or break costs (for fixed loans)
Step 2: Compare Rates
Use comparison sites (Canstar, Finder, RateCity) or speak to a broker to see current rates. Look for:
- Rates 0.3%+ lower than yours
- Loan features you want (offset account, redraw, extra repayments)
Step 3: Calculate Your Savings vs. Costs
Use a refinance calculator to estimate:
- Monthly savings
- Total lifetime savings
- Break-even time (how long until savings exceed costs)
Tip: If you'll save $200+/month and break even within 6 months, refinance immediately.
Step 4: Apply for Pre-Approval
Before committing, get pre-approval from the new lender. You'll need:
- ID: Driver's license, passport
- Payslips: Last 2-3 (or 6 if casual)
- Tax returns: If self-employed (2 years)
- Bank statements: 3-6 months
- Current home loan statement: Showing balance and rate
- Property valuation: The new lender orders this (sometimes at your expense)
Pre-approval takes 2-5 business days.
Step 5: Formal Application
Once pre-approved, submit a formal application. The new lender will:
- Order a property valuation (if they haven't already)
- Verify your income and employment
- Check your credit file
- Prepare loan documents
Timeline: 2-4 weeks from application to settlement.
Step 6: Settlement & Discharge
On settlement day:
- The new lender pays out your existing loan
- Your old lender discharges the mortgage on your property
- The new lender registers their mortgage
- You start making repayments to the new lender
Done! You're now saving $200-$500+/month.
7 Insider Tips to Maximise Refinance Savings
1. Negotiate with Your Current Lender First
Before refinancing, call your current lender's retention team and say: "I found a rate 0.8% lower with [competitor]. Can you match it?"
Banks often drop your rate by 0.3-0.8% to keep you—saving you the hassle of refinancing.
If they say no or offer less than 0.5% reduction: Refinance.
2. Use a Broker to Compare 100+ Lenders
Banks advertise their rates, but non-bank lenders (who often have better rates) don't. Brokers compare 100+ lenders including non-banks, credit unions, and smaller institutions.
Example: Bank rates: 5.8-6.2% p.a. Non-bank lender rate (via broker): 5.4% p.a.
3. Avoid Breaking Fixed-Rate Loans Early
If you're still in a fixed-rate period, breaking the loan early can cost $3,000-$20,000 in break fees.
Check: Call your lender and ask for a break fee estimate. If it's more than 12 months of savings, wait until the fixed term ends.
Exception: If rates have risen significantly since you fixed (e.g., you're on 2.5% fixed, but current variable is 6.5%), the break fee may be $0.
4. Refinance When Property Values Are Up
Lenders use loan-to-value ratio (LVR) to assess risk. If your property has increased in value, your LVR drops, making approval easier and rates lower.
Example:
- Original purchase: $500,000, loan $450,000 (90% LVR)
- Now: Property worth $700,000, loan $400,000 (57% LVR)
- You now qualify for "low LVR" rates (0.2-0.5% lower)
5. Close Unused Credit Cards Before Applying
Lenders assess your debt-to-income ratio when you apply. If you have a $15,000 credit card limit (even if unused), they assume you'll max it out.
Close unused credit cards 30 days before applying to improve your borrowing power.
6. Time It Right: Refinance Before Rate Hikes
If the RBA signals rate rises, refinance immediately before lenders raise rates. Waiting 2 months could cost you 0.25-0.5% in additional rate.
7. Ask Lenders to Waive Fees
Application fees ($400-$600) and valuation fees ($200-$300) are often waived if you ask—especially when using a broker who has lender relationships.
NIK Finance brokers negotiate fee waivers on 80%+ of refinances, saving you $500-$1,000.
Will Refinancing Hurt Your Credit Score?
Yes, but minimally. When you apply, the new lender does a hard credit inquiry, which lowers your score by 5-10 points temporarily (recovers in 3-6 months).
Avoid: Applying with 5-10 lenders yourself—each inquiry compounds the damage. Use a broker who submits one application to the right lender.
Should You Use a Mortgage Broker?
Benefits of using NIK Finance:
- Compare 100+ lenders (banks, non-banks, credit unions)
- Submit to the most suitable lender first time (avoiding rejections)
- Negotiate fee waivers ($500-$1,000 savings)
- Handle all paperwork and lender communication
- Cost: $0 (lenders pay us when your loan settles)
DIY refinancing:
- You research lenders yourself (time-consuming)
- You may miss better rates from non-bank lenders
- You apply with 2-3 lenders hoping one approves
- You pay all fees (no negotiation)
Final Thoughts
If you haven't refinanced in 3+ years, you're almost certainly overpaying by $2,000-$10,000/year. With refinance costs of just $500-$2,000, you break even within 2-6 months—then it's pure savings.
Refinance if:
- Your rate is 0.3%+ higher than current market rates
- Your fixed rate is ending soon
- You want to access equity for renovations or investments
- You have high-interest debts to consolidate
- You've been with the same lender for 3+ years
Ready to save? NIK Finance brokers compare 100+ lenders, negotiate fee waivers, and handle the entire refinance process for you—all for free. Submit a quote and see how much you can save.