After the bank said no, a new plan across two states.
What does refinancing a home loan mean?
Refinancing means replacing a current loan with a new one. The new loan pays out the old debt. It usually changes the rate, features, term or lender. It may cut costs, but a saving is not assured. Fees, new checks of your finances and any change to the time to repay affect the result.
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What changes when a mortgage is refinanced?
The old lender gets the amount needed to clear its loan. The new loan starts on its own terms. You can switch lenders or replace a product with the same lender. Asking for a new rate without replacing the loan is a different process.
The new terms may change fees, payment rules or bank account features. An old offset link may not carry across. An offset holds savings beside the debt to cut interest. A cash-out refinance lends you more than the sum needed to clear the old loan. That extra cash adds to your debt.
How do switching costs affect the break-even point?
Switching fees delay the point when lower running costs leave you better off. This is the break-even point. Leaving a fixed rate loan early may incur a break fee. You may also pay loan exit and setup fees, costs to check the home's value and mortgage registration charges.
A new lender may charge LMI, insurance that protects it, if your equity falls below its insurance limit. Compare the monthly saving with upfront costs and any new yearly fees. A cash offer for switching does not on its own show the total gain.
Why can refinancing become harder even when repayments are up to date?
A new lender decides on the loan using your current income, other payments and property used to back the debt. Your past loan payments matter, but do not replace fresh checks of what you can repay. Lower earnings or a lower property value can limit the new loan.
Cross-collateralisation means using several properties to back linked debts. It can add to the work of refinancing. Moving one loan may need the old lender to release a property from those links. Replacing the loan and freeing that property are two separate steps.
Illustrative example4 steps
Recovering assumed switching costs through monthly savings
- Assumed total upfront refinance costs: $2,400.
- Assumed monthly saving after ongoing fees: $120, with no term extension.
- Simple break-even period: $2,400 divided by $120 = 20 months.
- Switching again before that point would leave some of the initial costs unrecovered under these assumptions.
For investors
Replacing an investment loan does not reset its tax purpose.
A new loan used to clear eligible rental debt generally keeps that rental purpose for tax. Extra money spent on private costs has its own treatment. This applies even if a rental home still backs the loan. Refinancing can change when cash payments fall due and create costs for taking out the loan. An accountant can check each part's use and records against the ATO interest rules.
Common questions
Questions about refinancing
Keep learning
Property is a complex world.
Refinancing is one piece of it. Lending rules decide how much you can borrow, and how soon you can buy again. Next, read about cross-collateralisation, comparison rate and equity.
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