When Should You Refinance Your Home Loan?

Refinancing your home loan is one of the highest-return financial decisions you can make. A 0.5% rate reduction on a $600,000 loan saves you around $3,000 per year. Over five years, that's $15,000. So why don't more people do it?

Mostly because switching feels complicated. The good news: with a broker doing the legwork, most refinances settle within four to six weeks and require very little effort on your part.

Your bank's loyalty discount is probably not as good as it sounds.

Australian banks consistently offer better rates to new customers than to existing ones. If you've been with your lender for more than two years without requesting a rate review, there's a very good chance you're on a higher rate than you'd get by switching.

The RBA's own research has confirmed this pattern repeatedly. The average gap between what loyal customers pay and what new customers get is typically 0.3% to 0.7%. On a $700,000 loan, 0.5% is $3,500 per year in unnecessary interest.

Refinancing is worth exploring when any of these apply:

Your fixed rate is expiring. The end of a fixed rate is the single best time to review your loan. Your rate will roll onto a variable rate that's rarely the best available. Most lenders don't proactively offer you their best deal when this happens.

You haven't reviewed in two or more years. The market moves. What was competitive two years ago likely isn't today.

Your property value has increased significantly. Higher equity means lower LVR, which means access to better rates and potentially LMI refunds in some cases.

You want to consolidate debt. Rolling high-interest debt (credit cards, personal loans) into your home loan at a lower rate can dramatically reduce your monthly commitments.

You want to access equity. For renovations, an investment property deposit, or other purposes, refinancing can unlock equity without selling.

Refinancing has costs: exit fees on some older loans, discharge fees, new lender application fees, and potentially LMI if your equity has fallen below 20%. These typically add up to $1,000 to $2,500.

If you're planning to sell in the next twelve months, the savings from refinancing may not outweigh the switching costs. Similarly, if you're very close to paying off your loan, the maths often doesn't work in your favour.

This is why I always model the actual numbers before recommending a switch. "Your rate is high" is not enough on its own. We need to compare total cost over the period you're likely to stay in the loan.

Once I have your documents, most refinances take four to six weeks from application to settlement. Some lenders are faster. The process involves:

Week 1 to 2: Submit application with new lender, valuation ordered. Week 2 to 3: Conditional approval issued. Week 3 to 4: Formal approval, discharge authority sent to existing lender. Week 4 to 6: Settlement, loan switches over.

You typically don't need to do anything during this process except respond to any document requests. I handle the communication between lenders.

Find your last loan statement or log into your internet banking. Note your current interest rate. If it starts with a 6 or higher and you haven't reviewed in the last two years, it's almost certainly worth a conversation.

Book a free chat and I'll compare your rate against the current market and tell you honestly whether switching makes financial sense for your situation.