Refinancing mortgages in Australia: how the process works
Learn how mortgage refinancing works in Australia, including the process, costs, fees, equity requirements, break costs, and key factors to consider.
Refinancing a mortgage means replacing your existing home loan with a new one, either with the same lender or a different one.
What does refinancing a mortgage mean?
Refinancing a mortgage is the process of closing your current home loan and opening a new one. This allows borrowers to access different loan terms, features, or interest rates. The new loan pays out the old one, and you then make repayments on the new loan.
Refinancing is different from a loan variation, where you renegotiate terms with your existing lender without formally closing the loan. A full refinance involves a new credit application, property valuation, and a discharge of the existing mortgage.
Reasons people consider refinancing
Borrowers look at refinancing to review their interest rate, get different loan features, change their loan structure, or draw on equity.
Reviewing the interest rate on their loan
Interest rates vary between lenders and products. If your current rate is higher than other rates available in the market, it may be worth reviewing your home loan. Even a 0.05% p.a. reduction can save thousands over the life of a loan.
Accessing different loan features
Some borrowers refinance to get features their current loan does not offer. These could include redraw facilities, offset accounts, or the ability to make unlimited extra repayments.
Changing loan structure
Borrowers whose circumstances have changed, including employment type, income, or financial goals, may want to review their loan structure. This review often occurs as part of a broader financial review.
Accessing equity
Equity is the difference between the current market value of a property and the amount still owed on the mortgage. Some borrowers refinance to access a portion of that equity for things like renovations or other financial needs. Tax treatment of any equity access can depend on individual circumstances and may change over time. Consider seeking independent financial or tax advice.
How does refinancing a home loan work?
Refinancing a home loan means applying for a new loan, having the new lender assess your application, and arranging a property valuation. The process ends with discharging the existing mortgage at settlement. The timeline depends on your circumstances.
Step 1: Review your current loan
Before applying elsewhere, review the features, interest rate, and fees on your existing loan. This gives you a clear baseline for comparison.
Step 2: Compare home loan options
Compare products using interest rates, comparison rates, fees, and features. The comparison rate is useful because it includes standard fees alongside the interest rate, giving a more complete picture of the loan’s cost.
Step 3: Apply for a new loan
Apply with your chosen lender. Lenders typically ask for identification, proof of income, current loan statements, and property details. The new lender will assess your application based on their lending criteria.
Step 4: Property valuation
The new lender will value the property, which may involve a formal property valuation. This determines your current loan-to-value ratio (LVR), which affects what rate and product you qualify for.
Step 5: Discharge and settlement
If your application is approved, your new lender coordinates with your existing lender to discharge the old mortgage. The new loan settles, and you begin repayments under the new terms.
What does it cost to refinance a home loan?
Refinancing a home loan in Australia typically costs between $500 and $2,000. Costs vary by lender, loan type, and state. The table below shows the main fee categories involved.
Break costs when refinancing before a fixed term ends
If your existing loan is on a fixed rate, switching before the fixed period ends may result in a break cost. Break costs are fees a lender charges if you end, refinance, or make large extra repayments on a fixed-rate loan. These fees apply when such actions occur before the fixed term expires.
The general formula for estimating a break cost is:
- Break cost = Remaining balance × Rate differential × Remaining fixed term (in years)
For example, consider a remaining balance of $400,000 with a rate difference of 0.50% p.a. and 2 years left on the fixed term. The calculation is: $400,000 × 0.005 × 2 = $4,000.
This is an estimate only. Lenders use their own calculation methods, so ask your lender for the exact figure before proceeding.
Equity and insurance considerations
If you have less than 20% equity in your property at the time of refinancing, your new lender may require Lenders Mortgage Insurance (LMI). Saving 20% typically means you won’t need to pay Lenders Mortgage Insurance (LMI). LMI is generally payable when a lender agrees to lend more than 80% of a property’s value.
How lenders assess a refinance application
Lenders assess refinance applications using serviceability criteria, which covers your income, existing debts, living expenses, the property value, and your credit history. Lenders will then add a serviceability buffer, which tests whether you could still meet repayments at a higher interest rate than the one offered.
Your LVR also influences the rate tier you qualify for. A lower LVR (meaning more equity in the property) can unlock better rates. Maximising your property’s valuation can help lower your LVR and affect which rate tier you qualify for.
Things to consider before refinancing your mortgage
Refinancing involves upfront costs, so reviewing these factors before applying can help you make the decision.
Total cost of switching
Factor in all fees, including discharge, application, valuation, and registration costs, before comparing options.
Loan term
Refinancing to a new 30-year term when you have already paid down several years of an existing loan will extend the total repayment period. This can affect the total interest paid over the life of the loan, regardless of the rate.
Loan features
Some loan features such as an offset account or redraw facility, may carry different fee structures at different lenders. An offset account is a transaction account linked to a variable home loan. It reduces the interest charged by offsetting the account balance against the loan balance.
Review whether features you currently use are available and on what terms at a new lender.
Existing lender negotiation
Some borrowers approach their current lender before applying elsewhere. Lenders may offer to adjust your rate or terms as part of a retention discussion.
Credit impact
A refinance application involves a credit enquiry, which is recorded on your credit file. Multiple applications in a short period may affect your credit score.
Understanding the comparison rate
A comparison rate combines the interest rate with most standard fees and charges to give a more complete picture of a loan’s cost. It is shown as a percentage per annum and must be displayed alongside the advertised rate on all home loan offers in Australia.
The comparison rate does not include all possible fees. For example, it excludes redraw fees, fee waivers, and costs tied to changes in loan terms. Check the loan’s full fee schedule alongside the comparison rate.
Frequently asked questions
What is the difference between refinancing and switching home loans?
Refinancing and switching home loans refer to the same process, replacing one home loan with another. “Refinancing” is the broader term that also covers renegotiating terms with your existing lender without changing lenders. “Switching” more commonly describes moving to a new lender entirely.
Do I need 20% equity to refinance?
Having 20% equity in your property means your LVR is 80% or below, which is the threshold at which LMI is not required. Saving 20% typically means you won’t need to pay Lenders Mortgage Insurance (LMI). Lenders have their own LVR limits for refinancing, so check eligibility with your chosen lender directly.
What documents do I need to refinance?
Lenders generally ask for proof of identity, recent payslips or tax returns, and your most recent home loan statements. They also need a list of assets and liabilities, and details of any other debts. Self-employed applicants may need to provide extra income documentation such as tax assessments or business financial statements.
How long does refinancing take?
Refinancing can take anywhere from a few days to six weeks or more, with timelines varying by lender. The timeline depends on how complete your application is, your lender’s processing times, and valuation scheduling.
What is a comparison rate and why does it matter?
A comparison rate is the interest rate plus most standard loan fees, expressed as a single annual percentage. It gives a more complete picture of the loan’s true cost than the advertised interest rate alone. Comparison rates are required on all home loan offers in Australia.
Can I refinance a fixed-rate home loan?
A fixed-rate home loan can be refinanced before the fixed term ends, but doing so will generally trigger a break cost. The break cost is worked out using the remaining loan balance and the rate difference between your fixed rate and current wholesale rates. The length of the remaining fixed term is also factored into the calculation.
Ask your lender for the exact figure before making a decision.
Does refinancing affect my credit score?
A refinance application involves a hard credit enquiry, which is recorded on your credit file and can temporarily lower your score. Multiple applications in a short period have a cumulative effect. Checking your eligibility with a lender before formally applying can cut down on unnecessary enquiries.
About Unloan
Unloan is a low-rate variable home loan built by CommBank — Australia’s largest lender. Unloan has won the Canstar Outstanding Value Award for Variable Home Loan Lender in 2023, 2024, 2025, and 2026. The variable rate includes a loyalty discount that grows by 0.01% p.a. every year you stay (up to 30 years).
There are no application, ongoing, banking, account change, or exit fees*. Unlimited free redraw is included, and you can manage your loan through the Unloan app. Apply online in minutes, with live Australian support from home loan specialists, and Unloan refinances are available up to 80% LVR.
Unloan is a division of Commonwealth Bank of Australia.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. If you currently have an Unloan home loan with an active Lender’s Mortgage Insurance (LMI) policy the maximum amount you can borrow across all Unloan loans is $3,000,000. Please note Unloan currently doesn’t offer loans with an LMI premium. In some cases, depending on the property’s location or type, we may only be able to lend you up to 70% of the property’s value.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The loyalty discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Unloan is a division of Commonwealth Bank of Australia, and Commonwealth Bank does not provide tax (financial) advice under the Tax Agent Services Act 2009 (Cth). You should consider seeking independent tax advice from a registered tax agent, accountant or adviser before you make any decisions based on this information.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. If you currently have an Unloan home loan with an active Lender’s Mortgage Insurance (LMI) policy the maximum amount you can borrow across all Unloan loans is $3,000,000. Please note Unloan currently doesn’t offer loans with an LMI premium. In some cases, depending on the property’s location or type, we may only be able to lend you up to 70% of the property’s value.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The loyalty discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions are found on our Unloan Terms and Conditions. Modified Terms and Conditions will be set out in our Notice of Variation Agreement, if you are approved. This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The loyalty discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
