Are you paying a high amount of interest on your mortgage? Do you need to withdraw some cash to consolidate other debts? If so, you may consider refinancing your home loan to a new lender or a lower rate. Before you switch however, it’s important to determine the total cost of refinancing and whether the savings over the length of your loan will outweigh the costs.

refinance

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Advertised Rate

1.94%

Variable

Comparison Rate*

1.98%

Company
Mortgage House
Repayment

$1,263

monthly

Features
Redraw facility
Offset Account
Borrow up to 60%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

4.23

/ 5
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Winner of Best refinance home loan, RateCity Gold Awards 2021

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Advertised Rate

2.09%

Variable

Comparison Rate*

2.12%

Company
Yard
Repayment

$1,285

monthly

Features
Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

4.08

/ 5
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Winner of Best refinance home loan, RateCity Gold Awards 2021

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Advertised Rate

2.29%

Variable

Comparison Rate*

2.23%

Company
Athena Home Loans
Repayment

$1,314

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.63

/ 5
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Advertised Rate

1.95%

Fixed - 3 years

Comparison Rate*

2.27%

Company
UBank
Repayment

$1,264

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.38

/ 5
Go to site
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Advertised Rate

2.84%

Variable

Comparison Rate*

2.46%

Company
Athena Home Loans
Repayment

$710

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

1.96

/ 5
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Advertised Rate

2.48%

Variable

Comparison Rate*

2.50%

Company
loans.com.au
Repayment

$1,343

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.31

/ 5
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Advertised Rate

2.54%

Variable

Comparison Rate*

2.54%

Company
Athena Home Loans
Repayment

$1,352

monthly

Features
Redraw facility
Offset Account
Borrow up to 60%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.04

/ 5
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Advertised Rate

2.64%

Variable

Comparison Rate*

2.59%

Company
Athena Home Loans
Repayment

$1,367

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

2.81

/ 5
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Advertised Rate

2.55%

Variable

Comparison Rate*

2.60%

Company
CUA
Repayment

$1,353

monthly

Features
Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.10

/ 5
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Advertised Rate

2.59%

Variable

Comparison Rate*

2.60%

Company
Greater Bank
Repayment

$1,359

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.23

/ 5
Go to site
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Advertised Rate

2.59%

Variable

Comparison Rate*

2.60%

Company
HSBC
Repayment

$1,359

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.13

/ 5
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Advertised Rate

2.59%

Variable

Comparison Rate*

2.63%

Company
Newcastle Permanent
Repayment

$1,359

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.47

/ 5
Go to site

Winner of Best home loans over 1m, Best variable, RateCity Gold Awards 2021

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Advertised Rate

2.05%

Fixed - 2 years

Comparison Rate*

2.65%

Company
Adelaide Bank
Repayment

$1,279

monthly

Features
Redraw facility
Offset Account
Borrow up to 94.9999%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

2.68

/ 5
Go to site
More details
Advertised Rate

2.29%

Fixed - 3 years

Comparison Rate*

2.65%

Company
UBank
Repayment

$1,314

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

2.51

/ 5
Go to site
More details
Advertised Rate

2.84%

Variable

Comparison Rate*

2.68%

Company
Athena Home Loans
Repayment

$710

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

1.96

/ 5
Go to site
More details
Advertised Rate

2.69%

Variable

Comparison Rate*

2.69%

Company
NAB
Repayment

$1,375

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

2.96

/ 5
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Learn more about home loans

How does refinancing a home loan work?

Refinancing your home loan means getting a new loan with a different lender, to essentially “pay off” your old loan. 

Why would you refinance your home loan?

Refinancing can help you to:

  • Reduce your monthly repayments by switching to a lender with a cheaper refinance rate
  • Consolidate debts by accessing the equity in your home, explained in more detail below
  • Get cash out for expensive projects by increasing the size of your existing home loan
  • Get more support if you are unhappy with the service from your current bank
  • Access extra features that your current bank does not offer e.g. offset accounts
  • Switch to a lender with a low refinance rate and low interest credit card bundle
  • Get greater security with a fixed refinance rate if your financial circumstances change
  • Switch to an interest only home loan, from a principal and interest loan

What does home equity mean in refinancing?

How home equity works in refinancing depends on why you are choosing to refinance in the first place. Home loan refinance rates will vary depending on your financial situation.

How do you calculate your home equity?

Equity can be a difficult concept to understand, but to put it simply:

Home Equity = Current Market Value of the Property - Mortgage(s)

To calculate your equity, you need to first get the current market value of the property you own. You can get a rough estimate online, or you can contact your bank to see if they will send someone to assess the property. You may need to pay for this service, but if you are considering a new home loan refinance rate or want to access equity, it may be worth the cost.

Let’s say you own a property with a current market value of $750,000. You have one mortgage, and therefore still owe $575,000. As such, your home equity is:

$750,000 (Property Value) - $575,000 (Mortgage) = $175,000 (Home Equity)

If you want to access $100,000 for home renovations, you may want to wait a couple of years to see if your equity increases. You may also be able to see if you can find a lower refinance rate.

Let’s say you wait another five years, and get your property valued again, and your property value has increased by $150,000. In that period, you have made $180,000 in repayments on your mortgage, and therefore your new home equity is:

$800,000 (Property Value) - $395,000 (Mortgage) = $405,000 (Home Equity)

This type of capital growth in your property can make a huge difference in your ability to “get cash out of your mortgage” and is why many homeowners review their equity every two to three years.

How can you use your home equity to “get cash out”?

If you would like to “get cash out” of your mortgage using the equity in your home, you would refinance your loan by getting a second mortgage.

When you take out a mortgage, you are required to maintain a minimum Loan to Value Ratio (LVR). LVR is calculated as a percentage of the total market value, and is often between 80-90%.

How do you calculate LVR?

LVR = Loan Amount ÷ Property Value

Many lenders offer between 80-90% LVR. If you were looking to buy a $700,000 property, and you had $100,000 saved to put towards your deposit, you would need to borrow $600,000. As such, you would calculate the LVR as follows:

$600,000  ÷ $700,000 = 85%

Calculating usable equity to get cash out

In order to calculate your usable equity, you need the property value, and the LVR.

Let's say for instance you want to get cash out by refinancing, to fund home renovations. You have found a lender that is offering a second mortgage with an LVR of 80%. The exact calculation of usable equity can be found by dividing your home equity amount by 20%.

$405,000 (Home Equity) - 20% = $324,000 (usable equity)

A general rule when you are calculating whether refinancing is the best option, is to check you have at least 20% of the property value in equity. However, if your equity is less than 20%, and if you have a good credit rating, you may be able to refinance anyway. 

What are the benefits of refinancing?

Refinancing your home loan can help you secure a lower rate, provide cash for debts, or help you reduce your home loan term.

Get a cheaper rate and reduce monthly repayments

If you want to reduce your monthly payments, comparing home loans with lower interest rates is a good place to start. 

A lower refinance rate on a principal amount of $600,000 with a 30-year loan term and a $10 monthly fee, could save you thousands. If your current interest rate is 6.8 percent, your monthly repayments would amount to $3933 per month, $47196 per year or a total of $1,203,058 over the 30-year loan term.

Here’s an example of how your repayments would change if you switch to a lower rate:

 Lower rate % Change  New repayment  Annual savings  Total savings (30-year term) 
6.3%  -0.5% $3,724 $2,508 $75,240
5.3% -1.5% $3,342 $7,092 $212,240

These figures do not include additional fees and charges that may be charged by the lender during the refinancing process such as admin fees, legal fees or broker fees.

If however, you find a refinance rate that is 1.5% lower than your current rate, you could see savings in the hundreds of thousands of dollars over the 30-year loan term.

Get cash out of your home loan for other projects

The benefits of refinancing are not just about saving money. Many refinancers replace their existing loan with a new, larger loan so they can access extra funds for home renovations, a family holiday or even an upcoming wedding. 

Commonly referred to as “getting cash out” of your home loan, switching to a larger mortgage and getting the difference delivered to you in cash is one of the benefits of refinancing.

When you do this however, you may find the lender will increase your interest rate to account for the additional risk they have taken on. So be mindful to calculate your repayments on your original mortgage rate and on the new home loan refinance rate, to make sure it’s worth it.

You can calculate your repayments with the RateCity mortgage calculator.

Get out of debt by accessing equity

Refinancing can help homeowners get out of debt, similar to how a homeowner would get cash out of a home loan to fund other projects.

If, for example, a homeowner finds themselves with a $20,000 credit card debt, the interest paid on the debt would most likely be much higher than the home loan’s interest rate. As credit card interest rates can range from 10-20%, and home loans can range between 3-10%, it may be beneficial to consolidate debts by refinancing. 

Think carefully before you replace an unsecured debt, like credit card debt, with a secured debt like a mortgage, as if you cannot make the repayments you risk losing your house.

What are the disadvantages of refinancing?

Opting to refinance your home loan can help you save money. However, there are a few disadvantages that can accompany refinancing, that could see you paying more interest, or being locked into a longer loan term.

You may increase your principal repayments by reducing your loan term

If the reason you’re refinancing your home loan is to reduce your loan term and get a lower interest rate, you need to consider that your repayments may increase.

Regardless of whether you save money on a new, lower interest rate, reducing your loan term by five to ten years will most likely increase your monthly repayment amount.

To show you how this works, let’s use the example above, of a home loan with a principal amount of $600,000, an interest rate of 6.8%, a 30-year loan term and a $10 monthly fee. 

Interest rate Monthly repayment (30-year term) Monthly repayment (25-year term) Monthly repayment (20-year term)
6.8% $3,922 $4,174 $4,590
6.3% $3,724 $3,987 $4,413
5.3% $3,342 $3,623 $4,070

These figures do not include additional fees and charges that may be charged by the lender during the refinancing process such as admin fees, legal fees or broker fees.

Even if you lower your home loan rate 1.5%, reducing your loan term by ten years means you will end up paying more per month. You will pay off your loan a decade earlier, but if you’re refinancing to reduce your repayments, this may not be the best idea.

If you want to compare rates before you apply for refinancing, you can calculate your repayments using the RateCity mortgage calculator here. 

You may pay a higher interest rate for extra features

Refinancing does not always mean you will get a lower interest rate on your new refinanced mortgage. One of the potential disadvantages of refinancing is that if you switch home loans to gain access to extra features, you may be charged a higher interest rate than your original home loan rate.

If, for example, you want to “get cash out” of your mortgage or open an offset account, the lender may increase your home loan refinance rate to account for the risk they take by providing you with those features.

The refinancing process may end up costing more than you save in interest

Refinancing your home loan to get a lower refinance rate does not always mean you will get a “cheaper” overall home loan.

This is because the total cost of refinancing will depend upon your broker, your personal financial situation, the lender you are refinancing with and the loan term attached to your new refinanced mortgage.

There are many different fees and costs associated with refinancing, including legal fees, admin fees and establishment fees, that in the end may outweigh the savings. The only way to be sure that it’s worth refinancing your home loan is to calculate:

  • Total repayments due over the loan term
  • Fees for refinancing, including broker and admin fees
  • Total you will save over your loan term by switching to a new lender

If the amount you save outweighs the costs of refinancing, then opting for a refinance could be an option for you.

Frequently asked questions

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including:

  • the amount owing on your mortgage
  • the value of your property
  • your current interest rate
  • name of existing lender
  • property address

We’ll compare this information to the home loan options in the RateCity database, and show you which home loan products you may be eligible to apply for.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

The fine print – what are the eligibility criteria?

This competition is only available to Australian residents who are over 18 and check their home loan interest rate at RateCity. However, you are not required to refinance your home loan or apply for any financial products.

You can still enter if you don’t have a home loan yet – enter how much you plan to borrow and the details of the property you’re considering, and we’ll compare mortgage offers that may suit your needs and estimate how much you could save compared to a loan with an average interest rate. 

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

How do I calculate monthly mortgage repayments?

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

How can I calculate interest on my home loan?

You can calculate the total interest you will pay over the life of your loan by using a mortgage calculator. The calculator will estimate your repayments based on the amount you want to borrow, the interest rate, the length of your loan, whether you are an owner-occupier or an investor and whether you plan to pay ‘principal and interest’ or ‘interest-only’.

If you are buying a new home, the calculator will also help you work out how much you’ll need to pay in stamp duty and other related costs.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What are extra repayments?

Additional payments to your home loan above the minimum monthly instalments, which can help to reduce the loan’s term and remaining payable interest.

What is an ongoing fee?

Ongoing fees are any regular payments charged by your lender in addition to the interest they apply including annual fees, monthly account keeping fees and offset fees. The average annual fee is close to $200 however there are almost 2,000 home loan products that don’t charge an annual fee at all. There’s plenty of extra costs when you’re buying a home, such as conveyancing, stamp duty, moving costs, so the more fees you can avoid on your home loan, the better. While $200 might not seem like much in the grand scheme of things, it adds up to $6,000 over the life of a 30 year loan – money which would be much better off either reinvested into your home loan or in your back pocket for the next rainy day.

Example: Anna is tossing up between two different mortgage products. Both have the same variable interest rate, but one has a monthly account keeping fee of $20. By picking the loan with no fees, and investing an extra $20 a month into her loan, Josie will end up shaving 6 months off her 30 year loan and saving over $9,000* in interest repayments.

You couldn’t beat my current rate – how do I claim my reward?

If we can’t beat your current home loan rate, you can claim your $100 gift card by confirming your home loan details with us.*

To do this, on your results page you’ll need to securely upload a bank statement or similar home loan document that can be used to confirm the home loan details you provided. We’ll keep your information private and confidential and only use your document to confirm your entry.

How can I pay off my home loan faster?

The quickest way to pay off your home loan is to make regular extra contributions in addition to your monthly repayments to pay down the principal as fast as possible. This in turn reduces the amount of interest paid overall and shortens the length of the loan.

Another option may be to increase the frequency of your payments to fortnightly or weekly, rather than monthly, which may then reduce the amount of interest you are charged, depending on how your lender calculates repayments.

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by lenders such as BCU, Teacher’s Mutual Bank and Pepper. Even though these loans exist on the market, they are not overwhelmingly popular as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

How much money can I borrow for a home loan?

Tip: You can use RateCity how much can I borrow calculator to get a quick answer.

How much money you can borrow for a home loan will depend on a number of factors including your employment status, your income (and your partner’s income if you are taking out a joint loan), the size of your deposit, your living expenses and any other debt you might hold, including credit cards. 

A good place to start is to work out how much you can afford to make in monthly repayments, factoring in a buffer of at least 2 – 3 per cent to allow for interest rate rises along the way. You’ll also need to factor in additional costs that come with purchasing a property such as stamp duty, legal fees, building inspections, strata or council fees.

If you are planning on renting the property, you can factor in the expected rental income to help offset the mortgage, but again it’s prudent to add a significant buffer to allow for rental management fees, maintenance costs and short periods of no rental income when tenants move out. It’s also wise to factor in changes in personal circumstances – the typical home loan lasts for around 30 years and a lot can happen between now and then.

What are exit and discharge fees?

The Federal Government banned exit fees in 2011, removing one of the biggest barriers to taking switching home loan providers. Lenders can still legally charge a discharge fee, which is payable when you come to the end of your home loan, however these fees are relatively small at an average of $304 while 134 products don’t have them at all.