What is home loan refinancing?
What is home loan refinancing?
Home loan refinancing is when you replace your current home loan with a new one. That new loan might be with your existing lender, or with a different lender.
People usually look at refinancing when their situation, or needs and objectives change. It could be about getting a sharper rate, changing features, accessing equity, or simplifying debts.
Why refinance?
There are plenty of reasons refinancing might be worth a look. Here are some of the common ones.
Lower interest rates
A lower rate could reduce your repayments and the total interest you pay over time. But it’s not just about the headline rate. It’s worth checking the comparison rate and factoring in any break fees or other costs, as well as the new loan term, so you can see the real impact.
Accessing equity
If your property has increased in value or you’ve paid down some of your loan, you may have equity you can access. Some people refinance to use that equity for renovations, investments, or other big goals. If you’re thinking about renovating, it helps to plan the full process first, not just the exciting parts. Find out more about using the equity in your home.
Consolidating debts
Refinancing can sometimes be used to roll other debts into your home loan, so you’re managing one repayment instead of several. That can make things easier to stay on top of, and in some cases may reduce the monthly interest you’re paying overall.
It’s still worth reading the fine print on the debts you’re consolidating, including any break costs. And if spending habits are part of the problem, refinancing alone won’t fix that, but it can be part of a broader plan.
Better loan features
Sometimes it’s not the rate that’s the issue, it’s the features. Refinancing may give you access to things like an offset sub-account or more flexible repayment options.
An offset account can reduce the interest charged on your loan by offsetting the balance you owe with the money sitting in the account (different lenders may use different names and structures for this).
Different lenders and loan products may also offer different repayment options, or things like a direct line of contact for more support and customer service.
Why a non‑bank lender might be right when refinancing
Refinancing isn’t only about chasing a lower rate. If your circumstances have shifted since you first took out your loan, a non-bank lender can be another option, especially when a traditional bank assessment no longer reflects what your finances look like today.
When refinancing with a non‑bank lender may make sense
Refinancing with a non‑bank lender may be worth considering if:
- Your income structure has changed, such as becoming self‑employed or working on contract
- Your credit profile isn’t straightforward
- You’re refinancing for consolidation or cash‑out purposes
- You need a more flexible assessment approach than a major bank typically offers
Every borrower’s situation is different, and whether it’s suitable will depend on your individual circumstances.
Key benefits borrowers often look for
Borrowers who explore non‑bank lenders are often looking for:
- Flexible assessment of income and expenses
- The ability to consider a broader range of borrower scenarios
- Streamlined processes compared to some traditional lenders
These benefits can be particularly relevant if your financial position has changed over time.
When to refinance
There’s no set “right time” to refinance, but these situations often prompt people to take a look.
Market conditions
If interest rates have moved since you took out your original loan, it could be worth comparing what’s available now.
Financial changes
If your financial situation has improved, you might qualify for better loan terms than you did previously.
Loan features
If your loan doesn’t have the features you need (or they’re no longer working for you), refinancing could help you reset things.
Life changes
Changes like getting married, having children or switching careers can be a good reason to reassess your budget and make sure your loan still fits.
Steps to refinance your home loan
Evaluate your current loan
Compare options
Apply for the new loan
Settle the new loan
Keep an eye on it
Possible benefits of refinancing
- Cost savings if you secure a better rate or lower fees
- Better fit if you change loan features to match your needs
- More flexibility if you access equity for other goals
- Simpler repayments if you consolidate other debts into one monthly payment.
Considerations before refinancing
Lenders Mortgage Insurance (LMI)
It’s possible that some people may have to pay a risk fee that their chosen lender requests. For example, a Lenders Mortgage Insurance (LMI) fee will most likely be required where the amount you borrow is above 80% of the property’s value.
Upfront and ongoing fees
Refinancing can come with costs. These may include application fees, discharge fees and valuation or risk fees. Before switching, it’s worth weighing the total costs against the potential savings and checking your current loan terms (including break fees, interest rates and comparison rates). Learn more about what fees to expect when refinancing
Credit score impact
Applying for credit can affect your credit score, particularly if you make multiple applications in a short period - even if they were unsuccessful or withdrawn.
Long-term financial goals
A lower rate today is great, but refinancing should still make sense for where you’re heading longer term.
Refinancing with repayments in arrears
If you’re behind on repayments, it’s best to speak with a lender or a licensed financial or tax adviser. Not all lenders will consider applications in these circumstances, but options may still be available depending on your situation.
FAQs about refinancing
Home loan refinancing is when you replace your current home loan with a new one. The new loan can be with your existing lender or a different lender.
People usually consider refinancing when their circumstances change or they want their loan to better suit their needs. Common reasons include seeking a different interest rate, changing loan features, accessing equity, or simplifying existing debts.
Accessing equity means using the portion of your property's value that is not owed on your home loan. This may be possible if your property has increased in value or if you have paid down part of your loan.
Refinancing can sometimes be used to combine other debts into a home loan, allowing multiple repayments to be managed as a single repayment.
Refinancing may provide access to different loan features, such as offset sub-accounts or alternative repayment options, depending on the lender and loan product.
A non-bank lender is a financial institution that offers home loans but does not operate as a traditional bank. Non-bank lenders generally fund loans through wholesale markets or investors rather than customer deposits.
Yes. Non-bank lenders in Australia are regulated under Australian lending laws and must meet responsible lending obligations.
People often consider refinancing when market conditions change, their financial situation changes, their loan features no longer suit their needs, or following major life events.
Refinancing may involve costs such as application fees, discharge fees, valuation or risk fees, and possible break fees. It is important to consider total costs alongside potential changes to loan terms.
Applying for credit may affect your credit score, particularly if multiple applications are made within a short period.
Want to know more? We’re here to help.
Refinancing doesn’t have to be complicated. You can apply online with Pepper Money in less than 20 minutes if you are an eligible customer with PAYG income.
If you’re self-employed, or you’d simply rather talk it through, submit an online enquiry or call 137 377.
Contributor | Barry Saoud, General Manager, Mortgages and Commercial Lending
Barry joined Pepper Money in July 2021 as General Manager, Mortgages and Commercial Lending. He is responsible for the strategic direction and operating performance across product, credit, and settlements for mortgages, commercial loans, personal loans, and direct sales. Read more.
Want to find out where you stand?
Sign up to our newsletter
If you like this article, you'll love our Really helpful newsletter.
Personal information is collected, used, stored and disclosed in accordance with Pepper's Privacy Policy. I understand I can unsubscribe at any time.
Need some help with your refinancing?
There's a lot refinancing can do; from unlocking your equity to consolidating debts in to your home loan.
Some great resources are here to help you understand your options.
Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. All applications for credit are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply.
Pepper Money Limited ABN 55 094 317 665; AFSL and Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.
Pepper and the Pepper Money logo are registered trademarks of Pepper Group Assets (Australia) Pty Limited and are used under licence.
