How Much Can I Save by Refinancing a Home Loan?
Refinancing your home loan could potentially save you thousands of dollars, but the exact amount depends on your current interest rate, loan balance, remaining loan term and refinancing costs. Even a small reduction in your interest rate can make a meaningful difference to your total interest and monthly repayments.
Why Homeowners Choose to Refinance
Most homeowners refinance for three main reasons:
- Reduce their interest rate: A lower rate can reduce the interest paid over the life of the loan.
- Lower monthly repayments: Refinancing may help reduce repayments and improve monthly cash flow.
- Access home equity: Built-up equity may be used for renovations, investment or debt consolidation, subject to lending criteria.
Because home loan rates and offers change regularly, a loan that was competitive when you first took it out may no longer be the best option available.
What Determines Your Savings?
Your potential savings depend on the difference between your current and new interest rates, your outstanding loan balance, the remaining loan term and any fees involved in refinancing.
Rates are subject to change and lending criteria. The rate available to you may vary depending on your circumstances, loan amount, LVR and lender requirements.
A Real Refinancing Example
Mortgage Providers has a real client example where a borrower received a 1.2% interest rate discount and saved nearly $17,000 per year after refinancing.
This demonstrates the potential impact of securing a more competitive rate. However, savings vary between borrowers based on their individual loan balance, rate, term and costs.
Understanding the Costs Involved
Refinancing may involve costs, so these should be considered when calculating your overall savings. Common costs can include:
- Application or establishment fees
- Valuation and administration charges
- Settlement and mortgage registration fees
- Discharge fees from your existing lender
- Break costs if you leave a fixed-rate loan early
Fees vary between lenders. Some may offer cashback incentives that help offset switching costs. Comparing the total cost, rather than just the interest rate, can help you determine whether refinancing is worthwhile.
What You'll Need to Apply
Lenders will generally assess your income, expenses, assets, liabilities and existing loan commitments. Depending on your circumstances, you may need:
- Identification such as a driver's licence, passport or birth certificate
- Proof of income, such as payslips or a group certificate
- Recent bank statements
- Current home loan statements
- Details of assets and liabilities
- Your most recent council rates notice
Self-employed applicants may also need to provide tax returns, business activity statements or business bank statements.
Can I Refinance With Bad Credit?
Yes, refinancing may still be possible if you have previous credit issues or missed payments. Major banks can have stricter lending criteria, while specialist and non-conforming lenders may consider applicants with past credit problems.
Your options will depend on your current financial position, repayment history and the lender's assessment criteria. Keeping your loan-to-value ratio below 80% may also help you avoid lenders mortgage insurance where applicable.
Can I Access Equity When Refinancing?
Yes. Accessing built-up equity is one of the reasons homeowners refinance. Depending on your borrowing capacity and the lender's serviceability assessment, equity may potentially be used for renovations, investment or debt consolidation.
How Long Does Refinancing Take?
A standard refinance typically takes 4 to 6 weeks from submission to settlement, covering assessment, valuation and documentation. Once you sign your letter of offer, your existing lender may take up to 4 weeks to prepare the discharge request.
Some lenders also offer rapid refinance options that can settle within days, subject to eligibility and loan conditions.
Getting the Right Advice
The best way to determine how much you could save is to compare your current home loan with available options while considering the interest rate, loan balance, remaining term and refinancing costs.
Mortgage providers have access to a wide panel of lenders and can compare options to help determine whether refinancing could improve your financial position.
Final Thoughts
There is no single amount that every homeowner can save by refinancing. Your potential savings depend on your current rate, loan balance, remaining term, new rate and switching costs.
Even a small rate reduction can make a significant difference over the life of a mortgage. A professional review of your current loan can help you understand your potential savings and whether refinancing is the right option for you.
Ready to See What You Could Save?
Call us on 1300 656 600 or submit an online enquiry to get started.
FAQ
How long does it take to refinance a home loan?
A standard refinance typically takes 4 to 6 weeks from submission to settlement. Some lenders offer rapid refinance options that may settle within days, subject to eligibility.
Can I refinance if I have bad credit or missed payments?
Yes. Specialist and non-conforming lenders may consider borrowers with previous credit issues. Your options depend on your current financial position and the lender's criteria.
Can I access equity when I refinance?
Yes. Depending on your borrowing capacity and serviceability assessment, built-up equity may be used for renovations, investment or debt consolidation.
Do all lenders charge the same refinancing fees?
No. Fees vary between lenders. Some lenders may offer cashback incentives to help offset switching costs, so it is important to compare the overall cost of each option.