How to refinance your mortgage for the first time

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Australian property owners refinanced more than 372,000 mortgages valued at roughly $215 billion during 2024, the latest data from property settlement firm PEXA has revealed.

While it might not seem like it from the numbers, last year was actually comparatively quieter on the refinancing front. In fact, the number of loans switched in 2024 was down 17.6% on the year prior.

How to refinance your mortgage for the first time

After a slow 12 months, 2025 could be a different story though - especially if the Reserve Bank begins lowering the cash rate.

Angus Gilfillan, chief executive of digital mortgage broker Finspo, is among those expecting refinancing activity to pick up this year based on three major drivers.

The first is that rates will be in the spotlight again, if the RBA moves. The second is that not all lenders are likely to react to rate cuts in the same way, prompting frustrated borrowers to switch.

The third, interestingly, is that Gilfillan thinks that so-called 'mortgage prisoners' may find themselves in a better position if rates do start to drop.

"Many experts anticipate that rates will fall in 2025. As a result, customers who have been unable to refinance due to serviceability constraints could see improved opportunities to do so," Gilfillan says.

"Mortgage prisoners are estimated to represent around 20% of the market, so their ability to refinance could drive significant activity."

Of course, the fact of the matter is that many borrowers will never have thought about switching, or even been in a position to refinance their mortgage before.

So how can borrowers go about it? Read on as we lay out five steps that first-time refinancers may want to consider taking with the help of two mortgage experts.

1. Ask yourself why you want to refinance

While hundreds of thousands of homeowners make the switch from one lender to another each year, it does take time and effort. So before diving in, it may be worth working out why you actually want to refinance in the first place.

For many borrowers the decision will be about cost, because switching lenders is one way to secure a lower interest rate on their loan. A lower rate could help in two ways:

  • It could allow you to make lower mortgage repayments each week, fortnight or month, meaning less stress on your overall budget
  • Alternatively, by switching to a loan with a lower rate but continuing to make the same repayments as you were paying before, you could pay off the loan faster  

"Be clear on your goals and understand what you want to achieve through refinancing," Gilfillan says.

"Is it simply a lower rate, or are you also looking to reduce monthly repayments, consolidate debt, or access equity? Being clear on your objectives will help you assess your options more effectively."

To get a sense of whether you could benefit from refinancing, take ASIC Moneysmart's mortgage switching calculator for a spin.

2. Get some perspective

Once you've established why you want to refinance it may be useful to get a clear idea of what your current loan is offering so you can compare it to other offers.

"The reason you're refinancing will influence what you compare," says Rachel Wastell, personal finance expert at Mozo.

"Generally you should consider the interest rate and the comparison rate (which gives you a clearer idea of the true cost), as well as the loan term, loan features and fees."

Wastell also suggests working out your current loan-to-value ratio (LVR) which may dictate the specific loans that you may be able to apply for.

Following that it's time to get a sense of how competitive your rate, fees and features are compared to other loans. Comparison websites can be handy here, but bear in mind that they are unlikely to showcase every loan on the market.

3. Ask your lender for a better deal 

Now that you've established a baseline of what you're looking to get out of refinancing and how your current loan compares, you'll be in a better position to approach the task of switching loans.

But first, you may want to consider negotiating with your existing lender. After all, if you like your lender and the way your mortgage is currently set up, there's no harm in trying to negotiate a better rate with them. They may even be keen to keep your business.

"Refinancing involves effort, so it's often worth approaching your current lender first to see if they're willing to lower your rate," Gilfillan says.

"Lenders are more likely to adjust pricing if your circumstances have improved, for example, if you've paid down a significant portion of your loan and improved your LVR. Or if competitors are offering more competitive rates."

4. Consider getting refinancing assistance 

If you've had no luck negotiating with your current lender and are set on making the switch, the next step is working out whether you want, or need, assistance with the refinancing process.

There are two options, each with its pros and cons. You can go it alone by conducting research and approaching a new lender yourself, or you can employ a mortgage broker if you want some help.

In Wastell's opinion, there are a couple of advantages to taking the refinancing reins yourself.

"Brokers often work with a limited panel of lenders, so you may be able to access a broader range of deals, including from digital-only lenders who may not partner with brokers, like Unloan," she says.

"Managing the refinancing process yourself can also enhance your financial literacy, as you gain a deeper understanding of mortgage products and terms."

On the other hand, Gilfillan believes that there are a number of benefits to refinancing with a broker.

"A good broker can reduce much of the legwork by scanning the market for you. Mortgage brokers, like Finspo for example, offer over 1000 home loan products from more than 30 lenders.

"Brokers can also handle tough conversations with lenders, including negotiating rates and terms, saving you time and hassle. They can guide you through the process and ensure you know where you're at, what's coming next and what information is required."

Gilfillan also notes that mortgage brokers are legally required to put the best interests of their clients first when it comes to recommending home loans.

5. Get your documents in order  

Once you've narrowed down your search and landed upon a lender it's time to get organised. Gilfillan says that, typically, refinancers will need documents in three key areas.

  • Proof of identity: Unsurprisingly, you'll be required to prove who you are, which means that you are likely to need a passport, a birth certificate or a driver's license.
  • Proof of income: You'll also need to prove that you can service the new loan. That may include providing bank statements of your transaction history over the last six months and pay slips from your employer from the past 3-6 months.
  • Proof of financial situation: Beyond your income, lenders may also want to get a picture of your overall financial health. You may need to provide details of your living expenses (e.g. transport, groceries etc.), records of any other outstanding debt (e.g. a credit card), and documents related to any other assets you own (e.g. superannuation, shares etc.).

"At Finspo, we guide our customers through this process, helping them identify and prepare all the necessary documents and uploading them to their secure Finspo application tracker," Gilfillan says.

When isn't refinancing worth it?

While plenty of homeowners will be able to benefit from making the switch to a new lender and loan, it's important to note that this won't always be the case.

Given that, Wastell recommends that borrowers in the following positions either hold off entirely, or give some extra thought to refinancing before going ahead.

  • You're on a fixed rate: While not always the case, breaking a fixed rate mortgage can come with hefty break fees which may eclipse any potential savings available through refinancing.
  • Your LVR is over 80%: Borrowers who refinance with an LVR above the 80% mark are likely to need to pay lenders mortgage insurance (LMI) - even if they've already paid it before.
  • You've experienced financial change: Whether it's a career change or a shift in spending habits, any major financial changes could make refinancing trickier.
  • You're a new borrower: If you've only just taken out a loan it may not make sense to refinance, as establishment fees and other costs could outweigh the benefits of moving.

"Refinancing your mortgage can be a strategic move, but it's not always the best choice for every homeowner," Wastell says.

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.
Comments
John Forck
February 2, 2025 3.20pm

It is important to be aware of the mortgage refinancing trap without due consideration to the term of the new loan. Refinancing results in lower monthly repayments seem very attractive, but the revised loan term may mean paying more in total interest over the life of the loan. For example, Customers who have had a 25 year mortgage for a lengthy period (say 5 or more years) may potentially fall into this trap by taking a new loan over a 25 year period at lower monthly repayments, however, are not in a better overall financial position. The term of the new loan is a critical decision to determine the customers financial breakeven point and therefore, justify refinancing.