How to refinance a home loan: the fast guide

8 min read | 16 Aug 2022

You want to do some renovations? You want an investment property? Or you’d like some different features like an offset account? There are a lot of good reasons people decide to unVelcro themselves from a home loan or a lender that’s no longer the right one for them. Maybe it was once, but not any more. Repaying a home loan affects so many other things in your life, so it’s really important to feel a strong sense of control, ownership and satisfaction towards it. Because if you don’t, you can really come to resent it. Parting ways and changing to a different loan and lender that are more compatible with you may seem like too much of a hassle, but it’s actually easy to do, and it’s usually well worth it. So if you’re feeling trapped by your current home loan, or you’re no longer happy with your lender, making a fresh start by refinancing is well worth thinking about.

Refinancing is where you pay out your existing home loan by replacing it with a new, totally separate one that (should) put you in a better financial position. For example, you switch to a new loan with a lower interest rate or a longer, more manageable loan term than your current loan offers. With refinancing, you’re free to move to a new loan with the lender you’re already with or to a completely different lender and loan – but either way, the loan has to still be exclusively for you and for the same property. Refinancing used to be a drawn out and complicated process, but that’s all changed. Today, you can get your application approved in days and switch over in a month. Do be careful if you’re considering refinancing a fixed-rate home loan, though. Early termination fees and break costs can skyrocket, making a switch not financially worth it.

If you’ve decided refinancing is the go for you, here’s what you should start thinking about next:

If you want your new loan to have similar features to your current one, make sure you’re comparing the same kind of home loans. Because if your current home loan offers important features you like that the new one doesn’t, even a lower interest rate may end up leaving you worse off. On the other hand, after having lived your current loan for a few years, you might have decided that the features it has aren’t the right features for you. In that case, refinancing may give you the chance to right some wrongs and take out a different kind of home loan. For instance, if you can foresee taking a break from work in the future, switching to a loan that includes being able to take a repayment holiday or have a temporary interest-only period might be handy.

Because you’re replacing your current loan with a completely new one, you’ll need to put in a new application. But don’t worry, it’ll be worth it and easier since you’ve done it before. These are the kinds of things you’ll need:

• Details of all your income - payslips, tax statements, earnings going into your bank account, rent from an investment property.

• Details of assets outside of your home - shares, superannuation, investment properties, the value of your home contents, cars, etc.

• Details of your spending

• Your credit history (you can find out your credit score for free by doing an online search).

Read through a detailed checklist of what documents you'll need during your application process with Athena here.

Once all your information’s ready, submit your loan application. Afterwards, the lender will want to arrange a formal valuation of your property, so they can accurately estimate the loan-to-value ratio (LVR), which might have changed since you first bought your place.

Once your property’s been valued and your documents have been reviewed, there’ll be a credit assessment. If your history checks out, the lender will approve you for a loan. You’ll receive new loan documents to sign, which you should get checked by a solicitor, so you fully understand the terms and conditions you’re committing to.

Your new lender will arrange to pay out your existing loan. Once settlement’s complete, you’ll no longer be making repayments to your old lender.

• Getting a lower interest rate

You’ll save every time you make a repayment for the remaining life of the loan.

• You could shorten the length of your loan

Pay off your loan sooner and pay less in interest as a result.

• Access the growing equity in your property

The increased value can be transformed into ready funds for renovations, holidays, a car, an investment property - whatever your household needs.

• New/better/different loan features

Get the features your old loan didn’t come with, such as redraw facilities and an offset account, or even switch from a variable to a fixed rate.

Here are some of the fees you may encounter when refinancing. Not with Athena though, we don't charge fees!

• Mortgage application fees

Some lenders charge a one-off, up-front payment to set up the refinanced home loan and cover administration costs. It can range from $250 to $1000. Except at Athena. We have a $0 upfront fee.

• Property valuation fee

It’s necessary to confirm the current value of your property, as this would have changed since you first got your loan. On average, it's around $200. You won't get charged for a valuation fee at Athena, yep $0.

• Discharge fee

Also known as a 'termination fee' where some lenders charge you to end the loan contract. It's $200-$400 on average, but they can go up to $1000. Except at Athena, where we have a $0 discharge fee.

• Settlement fee

Some lenders charge a settlement fee to settle the new loan. The average cost range is $100 to $400. Yep, you know it. It's free again at Athena, $0! Why should we charge you for being a customer?

• Break costs

Applicable if you have a fixed rate loan, and you want to refinance before the end of the fixed term. So consider this when you've got a fixed-rate loan, as these can be significant. The factors which influence the break costs are the movement of the interest rates, the amount of time left on the loan and the size of the loan amount.

• Government refinance costs

The State Government charges a mortgage registration fee and can vary in cost depending on your state, it ranges from $260-$440. Check their website to see the exact figure.

• Exit fees

These don’t apply to loans taken out after 1 July 2011. Don't confuse this with discharge fees! The long-term savings of a lower interest rate should more than cancel most of these out, plus at Athena, we don't charge most of them anyway (some simply can’t be avoided because it’s a government department that’s charging them).

You can see all our eligibility criteria for Athena and Athena Select home loans here.