How to refinance your home loan for a better interest rate


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With the Reserve Bank's recent rate rises representing the biggest rate jump since 1994, it is understandable that many homeowners may be concerned about their current mortgage payments and are now in the market for a better deal.

Inflation, stalling wages and historic rate rises have undoubtedly strained household budgets nation-wide. However, there are many ways to combat the rate hikes, one of which is to consider refinancing your home.

Refinancing your home involves taking out a new loan (with either a new lender or your current one) to pay off your existing home loan. This is beneficial as you can often lock in a lower interest rate than what is attached to your current loan.

how to refinance your home and get a lower interest rate on your mortgage

So, if you are concerned about future rate rises and you're looking to swap lenders, how do you go about refinancing your home loan?

Check your loan contract

If you exit your contract early, there is the possibility you could have exit fees. In order to check this while considering refinancing, have a look at your loan contract which should state any exit fees. These usually exist within the first three to five years of your contract and are generally either a fixed price or a percentage of your remaining loan balance.

If your loan was taken out after July 1, 2011, and you have been making repayments for at least five years, then you should not have any exit fees.

However, if your loan was taken out before this date, it's possible that you do, so ensure you check your contract details before proceeding.

Compare home loans

When comparing home loans, it is important to check for any fees you may incur as a result of refinancing. Apart from the interest rate, you should check for loan application fees, valuation fees and settlement fees as some (or all) of these could affect how much money you save refinancing in the long run.

A loan application fee is what you are charged when applying for a new loan.

Similarly to when first applying for a home loan, you can be charged valuation fees if your new lender utilises a professional property evaluator to inspect your home.

A settlement fee may also be charged by the new lender to pay out your old loan.

There are also many add-ons and features to consider when applying for a new loan. However, these are based on personal preference and whether they add value to the loan option. In many cases, it may be more valuable to ask your current lender directly for a better deal before deciding to shop elsewhere.

Consider your current financial situation

With the rising cost of living, your income and overall financial situation has likely changed from the last time you applied for a home loan. This should be taken into consideration, as it will affect your eligibility overall, as well as which home loan is right for you and which will save you the most money.

For a more extensive comparison of loans, a lending specialist or broker can help explain loan options in more detail, and guide you through what home loan will best suit your needs and money saving goals.

Apply for a loan that suits you 

Once you've decided on a loan option that's right for you, it's time to apply. Depending on the bank or lender you have chosen, it may be possible to apply online - otherwise, most places allow you to apply over the phone.

Banks and lenders will require details such as your income, mortgage repayments and other financial commitments, so be sure to organise this and relevant documentation such as IDs beforehand. As previously mentioned, they may also require a valuation of your home done by a property valuer.

Should your application be successful, you will receive a letter of offer and a contract for your new home loan.

Discharge your current loan

Once your new loan has been finalised and you have signed the contract, it will be used to pay off your pre-existing home loan. This contract should specify when you will have to start making repayments on your new loan as well.

Your lender will also submit a 'Discharge of Mortgage' form to close the old home loan account.

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Catherine Mapusua is the head of lending at WLTH, a Brisbane-based digital lending and payments provider. She has more than 16 years of experience in the finance industry. Catherine holds a Certificate 4 in Finance and Mortgage Broking, as well as a Diploma of Finance and Mortgage Broking Management.