There are hundreds of motivating factors that can spur Australian property owners to consider refinancing their home loan. Chief among them is likely the potential of realising a lower interest rate. A lower rate could save a borrower thousands of dollars of interest every year, and hundreds of thousands over the life of their loan.
According to the Australian Bureau of Statistics (ABS), $238 billion worth of home loans were refinanced over the 12 months to August 2023. That’s perhaps unsurprising given the cash rate hiking spree the Reserve Bank of Australia embarked upon in mid-2022. An Aussie with a $500,000 home loan and a 7% p.a. interest rate could save more than $300 a month, or around $118,000 over a 30 year mortgage, by refinancing to a home loan with a 6% p.a. interest rate, Savings.com.au’s Refinancing Calculator shows.
But refinancing doesn't just happen – it typically requires some leg work on a homeowner’s behalf. How much a borrower might save will depend on the size of their mortgage, how many years are left on their loan term, and how much lower their new interest rate is, among other factors. On the other hand, refinancing is rarely free. Any potential savings should be considered in comparison to the cost of refinancing to determine whether refinancing would actually be beneficial.
Refinancing costs can vary depending on lenders and the individual situations of borrowers. Generally, there are two main types of home loan refinance:
External refinance: When you move your loan to another lender
Internal refinance: When you refinance your home loan with your existing lender
A homeowner looking to refinance through their existing lender might be able to bypass exit fees, valuation fees, and application fees. However, they might find the interest rates offered by their current lender are notably higher than those advertised by a competing bank. On other side of the coin, many lenders want to secure borrowers' business and might wave some fees or offer discounted interest rates to get it.