When to Refinance Your Home Loan and What Happens Next

Refinancing makes sense when the savings or features of a new loan clearly outweigh the cost of moving. For Canning Vale homeowners, the process is a sequence of defined steps, and knowing them puts you in control.

This article covers the timing signals, the steps from application to settlement, the costs to weigh, and one worked example using an illustrative rate of 6.75% p.a.

When Is the Right Time to Refinance a Home Loan?

The right time is when a fixed rate period is ending, when your rate has drifted above what lenders now offer, or when your goals have changed. Any of these can justify a refinance, but only if the numbers hold up after costs.

A fixed rate expiry is the clearest trigger. A lender may move you to a variable rate when the fixed term ends, so check what your lender will do. Your contract or lender will say which rate applies. Our fixed rate expiry guide explains how to plan the move before your term finishes.

Other signals include wanting an offset account or redraw facility, wanting to consolidate debts into your mortgage, or needing to access equity for a renovation or investment. A loan health check is a sensible first step because it shows whether your current loan still fits your life.

The Refinance Process From Application to Settlement

The refinance process has six stages: review, comparison, application, assessment, approval and settlement. Most of the work happens at the start, when you choose the right loan.

1. Review: Your broker looks at your current rate, fees, features, remaining term and repayment history.
2. Comparison: Lenders are compared on rate, fees and features against your goals, not on rate alone.
3. Application: You provide income and expense details, and the lender verifies them.
4. Assessment: The lender may order a property valuation and tests whether you can afford the loan.
5. Approval: You receive loan documents to review and sign.
6. Settlement: The new lender pays out your old loan through a discharge authority, and your new loan begins.

If you are comfortable doing so, ask your broker to explain each stage as it happens. You can see our full home loan refinance service for how we manage this on your behalf.

What Does It Cost to Refinance?

The main costs are a break fee on a fixed loan, a discharge fee, a new loan application fee, and possibly lenders mortgage insurance if you have less than 20% equity. Amounts vary by lender, so ask for each figure in writing.

Since 1 July 2011, lenders cannot charge an exit fee on a residential loan simply for ending the contract. Break fees and discharge fees are separate and still apply. A break fee applies only to fixed rate loans ended early, not to variable loans.

The trade-off is simple to state. A new loan with a lower rate can still lose you money if costs and a longer term cancel the saving. If a refinance reduces your repayments only because the term is longer, you will pay more interest over the life of the loan.

Refinance to a Lower Rate: A Worked Example

Refinancing to a lower rate can reduce repayments by a few hundred dollars a month, and a break-even calculation shows when the switch pays for itself. The figures below are illustrative only.

Consider a Canning Vale homeowner with $600,000 left on their loan and 25 years remaining. They are on a variable rate of 7.25% p.a., which gives repayments of about $4,337 a month. After a loan review, they refinance to a loan at the illustrative rate of 6.75% p.a., keeping the 25-year term.

Repayments fall to about $4,146 a month. That is roughly $191 less each month, or about $2,290 a year. If switching costs added up to $1,500 in total, the saving would cover them in about eight months.

The outcome depends on keeping the term the same. Had they stretched the loan to 30 years, repayments would drop further, but they would pay interest for five extra years. You can test your own numbers with our mortgage repayment calculator.

Will a New Lender Approve Your Refinance?

Approval depends on your income, expenses, debts, equity and repayment history. Banks must assess that you could still afford repayments if rates were 3 percentage points higher than the loan rate.

A clean record of on-time repayments helps, especially when you are moving to a lower rate without borrowing more. Lenders may look at 12 months or more of history. If your circumstances have changed since you took out the loan, such as a lower income or a higher cost of living, some lenders assess refinance applications case by case.

Borrowing extra is assessed more closely than a like-for-like switch, because the total debt grows. If you have a 5% Deposit Scheme loan, refinancing to a lender outside the scheme ends the scheme benefit, so check this first.

Releasing Equity When You Refinance

You may be able to release equity by refinancing for a higher loan amount, subject to lender approval, a valuation and a serviceability assessment (including the 3 percentage point buffer). It increases your debt and repayments, and may trigger LMI if the LVR goes above 80%. The extra funds should have a clear purpose, such as renovations or a deposit for your next property.

Our equity release page explains how this works. Tax matters too. Interest is generally deductible only when the borrowed money is used to produce income, and the use of the funds matters more than the property that secures the loan. Mixing private and investment borrowing in one loan can require interest to be apportioned. Speak with your accountant before you restructure.

Lock In a Rate or Stay Flexible?

A fixed rate gives repayment certainty for a set term, while a variable rate gives flexibility. Each has a cost.

Fixed loans can carry break fees if you leave early, and extra repayments are often capped. Variable loans can rise or fall with lender decisions, but they usually allow an offset account or redraw. Many borrowers split the loan so part is fixed and part is variable, which balances certainty and flexibility at the price of a more complex loan structure.

If you are weighing up what to do and want a plan built around your goals, call one of our team or book an appointment at a time that works for you through our booking page. We will review your loan, run the numbers and show you whether refinancing is worth your while.

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