How to refinance a home loan, and when it is worth doing

The short answer

Refinancing replaces your current loan with a new one on different terms. It is worth doing when the improvement in rate, structure or features outweighs the cost of switching and the time it takes to earn that cost back.

It is a full application, not an administrative change. Your income, commitments and the property are all assessed again, against the new lender's current policy rather than the one that applied when you first borrowed.

The reasons people refinance, and the catch in each

There are only a handful of genuine reasons to move a loan. Each of them has a version that works and a version that quietly costs you money.

The reason matters because it decides what a good outcome looks like. Chasing a rate when the real problem is structure is how people end up refinancing twice in two years.

What the switch actually costs

There are costs on the way out and costs on the way in. None of them are usually large on their own, and together they are the number the saving has to beat.

• A discharge or settlement fee from the lender you are leaving, where one applies
• Government fees to discharge the old mortgage and register the new one
• Application, valuation or settlement fees charged by the incoming lender
• Lenders mortgage insurance again, if your equity sits below the new lender's threshold, and it is generally not transferable
• Break costs, if you are exiting a fixed rate before the term ends

Work out how long the improvement takes to cover those costs. If the answer is longer than you expect to keep the loan, the switch is not a saving.

What a lender checks when you refinance

The assessment is the same one you went through the first time, applied to your position today. That catches people out when their circumstances have changed since.

• Your income and employment now, including any change to overtime, bonus or self-employed earnings
• Your commitments now, including any car loan, credit card or buy-now-pay-later account taken on since
• Your repayment history on the existing loan, which is visible on your credit file
• A valuation of the property, which sets how much equity you actually have
• Your living costs, assessed against the lender's benchmark as with any application

Policy also moves. A loan that was straightforward to write a few years ago is assessed against today's rules, and lenders can be more or less willing than they were.

How the process runs

1. 1

   Your current loan is reviewed properly

   Rate, structure, fees, features and what is left to run. You cannot tell whether an offer is better until you know exactly what you have.

2. 2

   Your existing lender is asked for a review

   Sometimes it matches or comes close enough that moving is not worth the cost. That is a good outcome, not a wasted step.

3. 3

   The market is compared against your position

   Not the advertised rates, but the lenders whose policy fits your income, your equity and your property.

4. 4

   The switch is costed before you commit

   Discharge fees, incoming fees, mortgage insurance and break costs against the improvement, with the time it takes to be ahead.

5. 5

   The application goes to one lender

   Assessed, valued and approved in the same way as any home loan, with documents to sign at the end of it.

6. 6

   The discharge is chased

   Your old lender has to release the mortgage for the new one to settle. This is the step that stalls most often, and it needs somebody chasing it.

When not to refinance

A broker who says the answer is always to switch is selling something. There are several situations where staying put is plainly better.

• The saving is small and the switching costs take years to recover
• You would pay lenders mortgage insurance a second time because your equity is still thin
• You are part way through a fixed term and the break cost swallows the benefit
• Your income or employment has changed recently, and you would assess worse now than you did then
• You are selling or moving within a short horizon, so there is no time to recover the cost
• Your current lender has matched the offer, which happens more often than people expect

If refinancing does not actually save you money, we will say so. Telling somebody to stay where they are costs us a settlement and keeps the advice worth having.

Where to go next on this site

Refinancing splits into a few distinct situations, and they are not the same exercise. Find yours below.

If the loan is fine and the structure is the problem, the loan types guide is a better place to start than a refinance.