Providence Lending Group | Refinancing
5 min read
KEY POINTS
- Refinancing your home loan means applying for a new loan to replace the existing one — it’s assessed as a fresh application, not an adjustment to the current one.
- Break costs, discharge fees and lenders mortgage insurance can all apply, and can offset some or all of the expected savings.
- Serviceability is reassessed at current rates and current circumstances, which isn’t guaranteed to produce the same outcome as the original loan.
- A lower advertised rate elsewhere doesn’t automatically mean refinancing your home loan will leave you better off once costs are factored in.
- This article explains the mechanics only. Whether refinancing suits your situation depends on your circumstances, and we’re always happy to work through it with you.
Refinancing your home loan is often framed as a simple decision — find a lower rate, switch, and start saving. The mechanics are somewhat more involved than that framing suggests. Refinancing your home loan means applying for an entirely new loan, which is assessed on its own merits, and the costs involved in making the switch don’t always show up in the headline rate comparison that prompted the decision in the first place.
Refinancing your home loan replaces the loan, not just the rate — and it’s assessed as new borrowing every time.
What actually happens when refinancing your home loan
A new lender pays out the existing loan in full and establishes a new facility in its place, generally secured against the same property. Because it’s a new loan, Moneysmart’s guidance on switching home loans recommends comparing the full offer — rate, fees and features — against at least one other lender, rather than switching purely on the strength of a single advertised rate.
The costs that can offset the benefit of refinancing your home loan
Discharge fees from the outgoing lender, application and settlement fees from the new one, and government registration charges are all common. Where the loan-to-value ratio on the new facility exceeds 80 per cent, lenders mortgage insurance may also apply — and unlike the original purchase, there’s no guarantee any existing LMI is transferable or refundable. For a loan with a fixed rate period still running, a break cost may apply on top of these, calculated by reference to the difference between the fixed rate and current wholesale rates. Together, these costs need to be weighed against the projected savings, not treated as an afterthought once the decision is made.
Why timing refinancing your home loan around interest rates isn’t the whole picture
Interest rate movements are one of the more common triggers for refinancing your home loan, and the RBA’s cash rate decisions feed through to lender pricing over time, though not always immediately or in full. Chasing a rate cycle can work against a borrower who incurs break costs on a fixed loan just before rates move again, or who refinances into a new fixed term shortly before conditions shift. The rate environment matters, but it’s one factor among several, not the only one worth weighing.
Serviceability is reassessed when refinancing your home loan
Because refinancing your home loan is a new application, it’s tested against the same criteria as any other — including the serviceability buffer APRA requires lenders to apply above the actual rate. A borrower whose income, expenses or existing debts have changed since the original loan was written may find the amount they can refinance differs from what they currently owe, which matters in particular for anyone hoping to refinance and increase the loan at the same time.
Choosing between lenders when refinancing your home loan
Loan-to-value thresholds, servicing calculators and policy on existing debts all vary between lenders, sometimes significantly. A borrower who doesn’t clear one lender’s servicing test may clear another’s comfortably, for reasons that have nothing to do with their overall creditworthiness. This is generally where we add the most value in a refinance — comparing not just headline rates but the full picture of fees, policy and timing across multiple lenders at once.
The considerations that deserve weight
A few points are worth stating plainly when weighing up refinancing your home loan:
- Break costs, discharge fees and LMI can materially reduce or eliminate the expected savings from a lower rate.
- Serviceability is reassessed on current circumstances, not on the original loan’s terms.
- Extending the loan term as part of a refinance can lower repayments while increasing total interest paid over the life of the loan.
- A cash-out refinance to access funds is assessed as new borrowing, with its own purpose and serviceability questions.
A lower rate is the start of the refinancing conversation, not the end of it. What it costs to get there matters just as much.
Understanding your position
For anyone considering refinancing their home loan, the useful starting point is a genuine cost-benefit comparison — the switching costs against the projected savings over a realistic time horizon, not just the headline rate difference. That analysis, alongside a fresh serviceability check, produces a clearer picture of whether a refinance is actually worth pursuing right now.
Whether refinancing suits your situation, and which lender is likely to offer the best combination of rate, fees and policy fit, are questions we’re glad to work through with you before you commit to an application.
Find out more about Refinancing here.