Beginner's Guide to Refinancing Your Home Loan

Why Refinance Your Home Loan

Refinancing replaces your current home loan with a new one, typically to reduce your monthly repayments, access funds, or improve loan features. Most borrowers who refinance do so to lower their interest rate, which directly reduces what they pay each month.

Burwood homeowners with loans established three or more years ago are often paying substantially more than necessary. Lenders adjust their rates frequently, and the product you were offered at settlement may no longer reflect what's available now. We see this regularly with clients who assumed their bank would automatically offer them competitive terms.

Consider a property owner in Burwood who purchased in the inner east several years ago on a package rate that has since reverted to a higher standard variable rate. Their repayments increased by several hundred dollars per month without any active communication from their lender. After conducting a loan health check, they refinanced to a lender offering a lower rate with an offset account, reducing their monthly commitment and improving cashflow.

When Fixed Rate Periods End

Your repayments will increase when your fixed rate period expires unless you refinance beforehand. Lenders typically revert borrowers to their standard variable rate, which is rarely competitive. This reversion often results in a repayment increase of 20% or more depending on how far rates have shifted.

In Burwood, where many buyers purchased during the low fixed rate environment, a significant number of loans are now coming off those initial terms. Property owners who locked in rates below 2.5% are now facing standard variable rates that can exceed 6%. The difference on a loan amount of $600,000 can mean an extra $800 to $1,000 each month.

Use the fixed rate expiry calculator at least 90 days before your term ends to compare your options. Most lenders allow you to start the refinance process without triggering break costs once you are within the final months of your fixed period.

Refinancing to Reduce Monthly Payments

Reducing your interest rate by even 0.5% can lower your monthly repayments by hundreds of dollars. For a $500,000 loan, a reduction from 6.2% to 5.7% would reduce monthly repayments by approximately $150, which compounds to thousands of dollars over the life of the loan.

Clients in Burwood often hold loans with their original lender for convenience, not realising that loyalty is rarely rewarded in mortgage lending. We frequently arrange refinancing for borrowers who have not reviewed their loan in five or more years and are paying rates up to 1% higher than what is currently available to new customers.

Refinancing does involve costs such as discharge fees, application fees, and valuation fees, typically totalling $1,500 to $3,000. However, the monthly savings usually recover these costs within six to twelve months. After that point, the reduction in repayments flows directly to your household budget or can be redirected toward paying down the loan faster.

Accessing Equity Without Increasing Repayments

Refinancing allows you to access equity in your property while maintaining or reducing your monthly repayments if the new rate is sufficiently lower. This is particularly relevant for Burwood homeowners who purchased in established areas near Deakin University or along Burwood Highway, where property values have strengthened.

Consider a scenario where a borrower has a loan of $400,000 on a property now valued higher due to local market growth. They want to access $80,000 for an investment property deposit but are concerned about increasing their monthly commitment. By refinancing the increased loan amount to a lender offering a rate reduction, their repayments can remain comparable to what they currently pay, or in some cases decrease slightly.

This approach works when the rate differential is significant enough to absorb the increased loan amount. It requires a current property valuation and a clear understanding of your borrowing capacity. Lenders assess serviceability on the new total loan amount, so income and existing debts are reassessed during the application.

Consolidating Debts Into Your Mortgage

Refinancing to consolidate personal loans, car loans, or credit card debt into your mortgage can reduce your total monthly outgoings substantially. Personal debt typically carries interest rates between 8% and 20%, while mortgage rates remain considerably lower.

For Burwood clients managing multiple repayments, consolidation simplifies finances and frees up monthly cashflow. A borrower with $30,000 in personal loans at 10% interest and $15,000 in credit card debt at 18% could be paying over $1,200 per month across those commitments. Rolling that debt into a mortgage at a lower rate reduces the monthly cost to a few hundred dollars, though it does extend the repayment term.

This strategy suits borrowers who want to improve cashflow or are struggling to meet multiple payment deadlines. It does not suit those who lack spending discipline, as clearing credit cards only to accumulate new debt creates a worse outcome. Lenders will also assess whether consolidating debt improves your overall financial position before approving the refinance.

Switching Between Fixed and Variable Rates

Refinancing gives you the opportunity to switch from a variable rate to a fixed rate, or vice versa, depending on your financial goals and expectations about interest rate movements. Borrowers who value certainty often choose to lock in a portion of their loan, while those prioritising flexibility prefer variable rates with offset accounts and redraw facilities.

Burwood homeowners refinancing from fixed to variable typically do so to access offset accounts, which reduce interest charges without locking funds away. This suits professionals or dual income households who maintain higher transaction account balances and want their savings working against the loan balance daily.

Switching from variable to fixed makes sense when you want repayment certainty or expect rates to rise further. However, fixed rates come with restrictions on extra repayments and typically do not offer offset accounts. Before refinancing to a fixed rate, confirm the annual extra repayment limit and whether any flexibility exists to break the loan early if your circumstances change.

The Refinance Application Process

The refinance process typically takes three to six weeks from application to settlement, depending on lender processing times and whether any complications arise with valuation or documentation. You will need to provide recent payslips, tax returns if self-employed, statements for all assets and liabilities, and identification.

Most lenders require a current valuation of your property. In Burwood, where the market includes a mix of older homes, renovated properties, and newer townhouses, valuation outcomes can vary. If the valuation comes in lower than expected, it may affect your borrowing capacity or require you to adjust the loan amount.

Once your application is approved and settlement is scheduled, your new lender will coordinate the discharge of your existing loan and the registration of the new mortgage. You do not need to take any time off work or attend settlement in person. Your existing loan is closed, and your new repayments commence from the settlement date. If you are refinancing with multiple debts being consolidated, those accounts are paid out as part of settlement and closed immediately afterward.

Should You Refinance or Negotiate With Your Current Lender

Negotiating with your current lender can sometimes achieve a rate reduction without the cost and effort of refinancing. However, the rate reduction offered is usually smaller than what you could access by switching lenders. Banks reserve their most competitive rates for new customers, not existing ones.

In our experience, Burwood clients who approach their lender directly are offered rate cuts of 0.1% to 0.3%, while refinancing to a new lender often secures reductions of 0.5% to 1% or more. The difference over a year can be several thousand dollars, which justifies the refinance costs and the time required to complete the process.

If your loan is small, your equity is limited, or you are planning to sell within the next 12 months, negotiating with your current lender may be the appropriate option. For most other situations, refinancing delivers a more substantial outcome. Running a comparison of both options with actual rate quotes gives you the clarity to make an informed decision.

Call one of our team or book an appointment at a time that works for you. AXTON Finance has been supporting Burwood homeowners with mortgage refinancing for years, and we will ensure your loan structure aligns with your financial position and goals.

Frequently Asked Questions