Home loan refinance, including the tricky ones

What does it mean to refinance a home loan?

To refinance is to take out a new loan and use it to pay off your existing mortgage. The property stays the same; the loan against it changes. You might move to a different lender, restructure with the same one, stretch the balance to release equity, or fold other debts into the mortgage.

The reasons are as varied as borrowers. Some people want a better fit. Some have outgrown a loan that was set up for different circumstances. Others have been told by their current lender that the answer is no, and need someone who knows where else to look.

What should I weigh up before switching?

MoneySmart puts the principle simply: make sure the benefits outweigh the costs. The costs it lists are worth knowing:

Possible cost	When it appears
Break fee	Leaving a fixed-rate loan early
Discharge or termination fee	Closing the old loan
Application fee	Opening the new loan
Switching fee	Refinancing within the same lender
Lenders mortgage insurance	Less than 20 per cent equity in the property

Fee amounts vary between lenders and products, so we do not quote them here. What matters is that you see the total, set it against what you expect to gain, and decide with open eyes. MoneySmart also cautions that a longer loan term can mean more interest overall, so keeping the term close to what remains on your current loan is a sensible check.

What are the common reasons people refinance?

• A better structure. Splitting a loan, adding an offset account or changing repayment type.
• Debt consolidation. Combining credit cards, personal loans or car loans into one repayment. MoneySmart notes consolidation can lower repayments but may increase total interest if the term stretches.
• Equity access. Funding a renovation, a deposit on another property or business needs. See cash-out refinance for the detail.
• Leaving an inflexible lender. Perhaps your business income is assessed harshly, or your credit file confuses the policy.
• Time pressure. A fixed term ending, a default notice or a settlement date approaching. See urgent mortgage refinance.

What do lenders look at when you refinance?

The assessment resembles a fresh application, because it is one.

• Equity. The gap between the property’s value and the debt. A valuation sets this.
• Income. Employed, self-employed or a mix. Self-employed refinancers should read self-employed home loans.
• Credit conduct. Repayment history on the existing mortgage tends to carry weight.
• Liabilities and expenses. Everything you owe and what you genuinely spend.
• Purpose. Refinancing for a lower repayment, or taking out cash, is assessed differently.

Who does this suit?

Refinancing suits owners who have meaningful equity, a clear reason for the change, and costs that stack up in their favour. It also suits borrowers who simply cannot stay where they are, for instance because the lender has declined to extend a loan or will not accept their income.

If your bank said no, you are not alone. Our guide on refinancing when your bank says no explains why lenders reach different conclusions on the same file.

How does Ownright approach refinancing?

Many brokers handle refinances that look like the last ten they did. Ownright is built for the ones that do not. Trevor Scott and the team have spent decades finding structures that conventional policy overlooks.

That can mean a non-bank lender with more flexible assessment, covered in non-bank home loans. It can mean a short-term private solution while the file is tidied, then a second refinance into a conventional loan. It can mean a solution almost nobody else mentions, because most brokers do not know it exists. Our reach is Australia-wide, from the Knoxfield, Victoria head office to regional properties in every state and territory.

We also say when not to refinance. If switching costs will outrun the benefit, we will tell you.

Illustrative example

This is a made-up scenario for explanation. A couple bought their home several years ago and have since added a credit card balance, a car loan and a tax bill. Their bank will not lend them more, and their repayments are a squeeze.

A broker could look at consolidating the lot into a new mortgage with a longer-term lender, if the equity and income stack up. The monthly outflow might drop, but because the term stretches the total interest paid could rise. Seeing both sides is part of the job. If a bank refuses, the broker may turn to a lender who treats the same file differently, or to a staged plan that fixes the credit picture first.

Mistakes to avoid when refinancing

• Switching for a headline benefit without adding up discharge and application costs.
• Rolling short-term debts into a 30-year loan without noticing what it does to total interest.
• Applying with several lenders at once and cluttering your credit file.
• Leaving it until you are in arrears, when options are narrower.
• Forgetting that your existing lender may offer a retention deal if you ask.

Documents to have ready

• Your latest loan statement and a recent rates notice.
• Proof of income: payslips, or tax returns and BAS if self-employed.
• Details of other debts you want to include.
• ID and details of any co-borrowers.
• Anything explaining unusual events on your credit file.

How do I tell whether my current lender can fix this?

Before leaving, it is worth asking whether your current lender will meet you part way. MoneySmart suggests asking your lender for a better deal first, and notes that having good equity and a healthy credit score strengthens your hand. Possible outcomes include a revised structure, fee waivers or a retention offer. If they decline, you have lost nothing and gained information about the lender’s flexibility.

Ownright can help with that conversation too. Sometimes it is quicker to refinance away; sometimes the existing lender will bend once it knows a competitor is considering the file. We tell you which looks more likely.

What happens during the refinance process?

The steps are fairly consistent.

1. Application. You supply income, expense and loan details, and the lender runs a credit check.
2. Valuation. The lender checks the property’s value, which sets the equity position.
3. Approval and offer. Conditions are listed, such as proof of insurance or evidence of discharge of other debts.
4. Discharge authority. You authorise the new lender to pay out the old one.
5. Settlement. The new loan funds, the old loan closes, and any extra funds land in your account.

A few details catch people out. Insurance must be in place. Any other registered interests on the title, such as a second mortgage or caveat, have to be dealt with. If you are on a fixed rate, the break cost can change the answer entirely. And if a property is in a trust or company name, the paperwork grows.

What if I owe money beyond the mortgage?

Many refinances are driven by other debts, such as tax bills, credit cards or business loans. Where those sit behind the mortgage in your thinking, consider:

• Whether rolling them into the mortgage actually reduces total cost, since a longer term can mean more interest overall.
• Whether the lender will accept the purpose. For tax debts, see home loans when you owe the ATO.
• Whether a different structure would serve better, such as keeping the first mortgage and adding a second mortgage for the extra funds.

Ready to look at your options?

Start your application and tell us what you want the new loan to do. If you are not sure that refinancing is the right call, that is fine; give us the facts and we will tell you honestly. You can also send us your details for a conversation, or phone 03 7043 7233.