How to Refinance Your Home Loan Step by Step (and When It Isn’t Worth It)

Refinancing means replacing your home loan with a new one, usually for a lower rate or better features. Start by asking your current lender to reprice, then compare like for like, add up switching costs and work out how long it takes to break even. If you can’t recover the costs within a year or two, switching may not be worth it.

You spot a rate online that’s half a percentage point lower than yours. Your gut says switch. Then the paperwork starts. An application fee here. A discharge fee there. A loan term that quietly stretches back out.

If you’re wondering how to refinance a home loan, it’s a process you can walk through. This guide goes from the first phone call to settlement day. We’ll cover what refinancing actually changes on your loan, the four numbers to find before you start and why repricing your current loan is step one. You’ll see how to compare like for like, not headline rate against headline rate, what a discharge figure includes and how to read a comparison rate without your eyes glazing over. Then we get honest about the break-even maths with a worked example. We’ll also look at when refinancing is not worth it and staying put wins.

At Time Home Loans, clients never pay a broker fee. You can book a complimentary chat when you’re ready. This is general information only and does not take into account your objectives, financial situation or needs. Fees, charges and lending criteria apply. Seek advice first. Authorised Credit Representative under Australian Credit Licence 384324.

What refinancing actually changes on your loan

Refinancing is simpler than it sounds. You take out a new home loan and use that money to pay out the old one. The old loan closes. A new one starts. That is the whole mechanism.

What it can change comes down to three things: your interest rate, your loan features and your remaining term. Only the first one tends to appear in the advertising, which is why a lower rate is not automatically a cheaper loan.

Picture it like changing your phone plan mid contract. You are not buying a new phone. You are swapping the terms on the service you already have and there is usually an exit cost on the old plan plus a fresh set of conditions on the new one.

Your starting point is a benchmark, not a decision. Before you look at a single offer, find your current interest rate and your current comparison rate. Then write down your remaining term. Those three numbers are what every offer gets measured against. Our guide on review and refinance covers where to find them.

Time Home Loans is a Brisbane-based mortgage broking business. We compare loans from a panel of 50+ lenders and handle the switch from the first conversation through to settlement.

This is general information only and does not take into account your objectives, financial situation or needs.

Four numbers to find before you start

Before you look at a single offer, gather the numbers that turn a rate advertisement into a comparison.

Your current interest rate and comparison rate. Both are usually on your loan statement or in your lender’s app. The interest rate is the headline. The comparison rate folds in most ongoing fees, so it is the one to use when you line two loans up.

Your discharge fee. This is what your lender charges to pay out and close the loan. It varies between lenders, so ask for the exact figure in writing.

Your remaining loan term. If you have 12 years left and you take a fresh 30 year loan, your repayments drop and your total interest climbs. Write down the years left, not just the balance.

Your equity. That is your property value minus what you still owe. ASIC has said at least 20% equity gives you more to negotiate with, so a rough figure helps. Our guide to Home Loan Refinancing Indicators & Tips covers what else lenders look at.

Then audit your features. Offset account, redraw, extra repayments, a fixed and variable split. Anything you pay for but have not touched in a year is a cost you can drop.

One last thing. Do not start from a 2021 headline about record low rates. Ask your lender for your rate today and work from that number instead.

With those figures on one page, your first call is not to a new lender. It is to your own.

Step 1: ask your current lender to reprice first

You have your four numbers. Now use one of them before you look at a single new offer.

Repricing means asking your own lender to cut the rate on the loan you already have. Same loan, same account number. No new application, no discharge fee and no valuation. It is the simplest move on the list because it costs nothing but a phone call.

ASIC’s first tip for refinancers is to talk to your current lender before you switch. That advice holds up. Lenders often offer sharper rates to new customers than to the borrowers who have been paying them for years, largely because the existing ones rarely ask. Tell them you are looking at other options and would rather stay if the rate is right.

Come with evidence. Have the comparison rates of two or three similar loans ready, on the same amount and term as yours. Mention your repayment history while you are on the phone. That turns a request into a conversation between two people with numbers on the table.

If you are on a fixed rate, ask what a break fee would be before you compare anything else. That number can change the whole decision, so get it first.

A good credit score helps your case. So does having 20% or more equity in the property, which ASIC notes gives you more to bargain with.

The worst outcome is a small cut that still leaves you behind the market. You have lost one phone call and gained a benchmark.

If you would rather not make the calls yourself, Time Home Loans can run the comparison and put the request to your lender. Thinking about purchasing or refinancing? That is how we can help. Clients never pay a broker fee at any stage.

Step 2: gather your paperwork

Step 1 ended with a phone call. Step 2 is paperwork.

Here is the usual set: photo ID, recent payslips, a letter from your employer, three to six months of bank statements and your latest loan statement. If you are self-employed, swap the payslips for two years of tax returns and notices of assessment. Lenders have to verify you can repay, which is why the income evidence matters more than the cover letter.

Your loan statement does three jobs at once: it shows your balance, your rate and your repayment history. Grab it before you ring anyone.

If part of your deposit or your repayments came from a gift or a property sale, find that paperwork now. Missing documents are what stretch an application out, not the lender’s speed.

A refinance means a new credit check. Several applications in a short window can leave marks on your file, so do the comparison work first and apply once. If you are self-employed and your income evidence is unusual, our page on low-doc home loans explains how that side works. The process does not change. The documents do.

Keep everything in one folder, digital or paper. Settlement day gets a lot quieter when you are not hunting for a bank statement at 9pm.

Step 3: compare like for like, not headline rate against headline rate

Paperwork sorted, the real work starts. Two loans can advertise the same rate and still cost you different amounts once fees, offset accounts and repayment rules are counted. So compare like for like, not headline against headline.

Match the loan to your habits. If you have never used an offset account, paying an annual package fee for one is like renting a storage unit you never visit. Write down the fees the rate hides: annual package fee, monthly account fee, discharge fee and any charge for extra repayments. ASIC groups mortgage fees into entry, ongoing, service and exit categories. Service fees such as redraw can depend on what you do with the loan (Review of Mortgage Entry and Exit Fees).

Check the rules that matter to you. If you make extra repayments now, a loan that blocks them or caps them low is a step backwards. Ask about the term too. Restarting a 25 year clock when you have 15 years left lowers your repayment and raises the total interest you pay.

Two loans are only comparable when the amounts, the terms and the features line up. Everything else is advertising. When you rank them, use the comparison rate rather than the advertised rate, because it folds most ongoing fees into one number. Take the same loan amount, the same remaining term and only the features you actually use, then see which one holds up.

Refinance home loan rates and what a refinance home loan calculator cannot tell you

Once the loans are lined up like for like, the next stop is rates. Refinance home loan rates are advertised on lender websites and comparison sites. They move often. The rate you are actually offered also depends on your equity, your income and your credit file, so the advertised number is a starting point rather than a promise.

A refinance home loan calculator does two jobs well. It models the repayment on a new loan. It can also estimate your break even month. What it cannot do is read product terms. Most calculators will not know your discharge fee, your break fee or which features you actually use. Those numbers come from your lender and from your own habits, not from a form.

Some calculators compare the interest paid on your current loan with the interest paid on a new one. That is genuinely useful, but only if the two rates you enter are comparison rates. Otherwise you are comparing two different languages.

Moneysmart publishes public mortgage and switching calculators that are worth a look. You can browse the topics we cover on our site map. A broker can also run the numbers on your actual loan instead of a generic example, which matters when your discharge fee and features are not standard. Next, it helps to know what a comparison rate actually includes.

What a comparison rate includes, in plain English

This is where the comparison rate earns its keep. It folds the interest rate and most ongoing fees into one number, so a loan with a tempting headline rate and a hefty annual package fee stops looking so clever. Think of it as the price tag after the extras, not the price on the sticker.

The number is worked out on a standard example: a $150,000 loan over 25 years. Yours is almost certainly bigger. That makes it a tool for ranking one loan against another, not a forecast of what you will pay each month. For the moving parts underneath it, see how interest is calculated on a home loan.

The warning that travels with every comparison rate is worth reading rather than skimming. It is true only for the examples given and may not include all fees and charges. A different term, fee or loan amount can produce a different comparison rate.

In Australia, a lender that advertises a home loan interest rate must show a comparison rate next to it. That makes like for like shopping a lot easier.

Some costs sit outside it. Government charges, discharge fees and break fees are the usual ones, which is why you add them by hand in the break even maths.

Your own comparison rate is usually on your statement. If you cannot find it, ask your lender for it in writing before you compare anything.

Step 4: ask for the discharge figure and check the exit costs

Your lender will give you a number called the discharge figure. It is the amount needed on a set date to close the loan. It is not the same as your current balance, because interest keeps accruing right up to settlement. The payout creeps up daily.

Ask for it in writing, for a named date. A figure quoted three weeks ago can be out of date by the time settlement arrives.

Then add the exit costs on top:

• The discharge fee, which is your lender’s charge for closing the loan
• Any break fee if you are on a fixed rate
• Any fee to release a guarantor or a second security

The break fee is the one that catches people out. On some fixed loans it is modest. On others it runs into thousands, which is why you get the number before you commit to anything.

Timing matters too. Line settlement up with your repayment cycle so you are not paying interest on a loan you have already left.

Write all of it down. Those figures feed straight into the break even maths.

Step 5: apply, get approval and settle the switch

With your discharge figure in hand and your paperwork gathered, you apply for the loan that held up on both the comparison rate and the features. The new lender orders a valuation of your property, checks your details and issues a formal approval. From there, your new lender books settlement with your old one. On settlement day the old loan is paid out, the new loan begins and the property title moves across.

Then set up your repayments straight after settlement. If your budget allows, add a small buffer or an extra repayment. That habit is what actually shortens a loan, more than the rate on its own.

On timing, expect a few weeks. Missing documents or a valuation that needs a second look can stretch it out. Nobody can promise a turnaround time. Planning around a rough window beats chasing a date. If you want to know how long home loan approval takes, we have written about the moving parts.

One quiet risk to watch: how much you borrow. Rolling fees and a few extras into a bigger loan is how a refinance grows without anyone noticing. Keep the new loan at the amount you actually need.

Time Home Loans handles the steps between the first conversation and settlement, so you are not the one chasing lenders and paperwork. Clients never pay a broker fee at any stage.

How long does it take to break even on a refinance?

Once settlement is done, the question you were really asking gets answered: did the switch pay for itself?

The method is short. Add up your switching costs and divide by your monthly saving. The answer is the number of months before you are ahead.

Start with the full cost list:

• Discharge fee on the old loan
• Application fee on the new one
• Valuation fee
• Any break fee on a fixed rate
• The value of any feature you give up

Now a worked example, using illustrative numbers rather than a quote. You owe $600,000. The new comparison rate is 0.40 percentage points below your old one. That is roughly $200 a month in interest at the start and a little less as the balance falls. Round it down to $150 to stay on the safe side.

Your costs in the same example: discharge fee $350, application fee $500, valuation $300 and an offset benefit you lose worth $250. That totals $1,400.

$1,400 divided by $150 is a bit over nine months. If you expect to keep this loan for years, it clears comfortably. If you might sell or move within a year, it does not.

Two things the maths has to include. If the new loan runs longer, part of your monthly saving is simply paying for more years. And a cashback is a one-off payment, so weigh it against the rate and fees across the life of the loan, as ASIC suggests.

Then run it twice, once with your optimistic saving and once with your pessimistic one. If it only works on the optimistic number, you have your answer.

Whether that answer points to switching or staying is the next question.

When is refinancing not worth it?

You have run the numbers. The saving clears your costs. That still does not mean you should switch.

If you are 20 years into a 25 year loan, most of the interest is already paid. The balance is mostly principal, so a lower rate has little left to save. Switching costs can swallow the gain.

A large break fee is the clearer stopper. On a fixed loan it can be bigger than two or three years of savings. Waiting until the fixed period ends often costs you less than exiting now.

Time matters too. A two year break even on a loan you might close in one year is not a saving.

Your current lender might match the market. If a phone call gets you close to the offer, a repriced loan on your existing terms avoids discharge fees, application fees and a new credit check.

Then check the features. Giving up an offset account or redraw to shave a small amount off the rate can leave you worse off. A lower rate on paper is not a lower cost if you lose the tools you use.

And if the real problem is not your rate? If repayments feel stretched or your circumstances have changed, that is a budget conversation. Switching lenders will not fix it. Speak to a financial adviser before you apply.

Refinancing tips that save money and headaches

Staying put is a legitimate answer. If the maths said switch, these habits keep the saving honest.

Weigh a cashback across the whole loan term, not the week it lands. Say a lender offers $2,000 upfront on a loan that costs you $400 more each year in fees. That cashback is spent within five years. After that you are behind.

Ask the new lender to keep your remaining term if your budget allows. If you have 18 years left and take a fresh 30 year loan, your repayment drops and your total interest climbs. Keeping 18 years means a higher repayment and less interest paid overall.

Check your credit file before you apply. A tidy file and 20% or more equity give you more room to negotiate.

Ask any broker or lender how they are paid. Time Home Loans is paid by the lender, which is why clients never pay a broker fee at any stage.

Keep one document folder current. Refinancing, buying and investing all need the same core paperwork, so you will not be scrambling for payslips when an application is underway.

If you are not sure which way the maths falls, book a complimentary chat with Time Home Loans before you sign anything.

What to do this week

Six minutes with your loan statement is enough to start. Open it and write down four numbers: your current rate, your comparison rate, how many years are left and your discharge fee. Those four figures decide almost everything that follows.

Then make one phone call. Ask your current lender to reprice the loan you already have. No new application, no valuation and sometimes it wins. If the rate they offer lands close to what you were quoted elsewhere, the switch may already be settled.

If it does not, compare the loans on comparison rates rather than headline rates. Same amount, same term, same features. Then run the break even maths yourself: total switching costs divided by your monthly saving. Use your own figures, not the calculator’s default ones.

If the saving clears your costs inside a timeframe you are comfortable with, refinancing can be a sound move. If it does not, staying put is a legitimate answer.

Book a complimentary chat with Time Home Loans if you would like the numbers run for you. Clients never pay a broker fee at any stage. This is general information only and does not take into account your objectives, financial situation or needs. Time Home Loans Pty Ltd ABN 53 161 695 012 is an Authorised Credit Representative under Australian Credit Licence 384324. Lending criteria, fees and charges apply.

Conclusion

Four numbers decide almost everything: your current rate, comparison rate, years left and discharge fee. Reprice first. Then compare like for like on comparison rates, not headline rates. Run the break even maths with your own figures. If the saving clears your costs in a timeframe you are comfortable with, switching can make sense. If not, staying put is legitimate.

Your next step: open your loan statement and write those four numbers down. Then call your current lender and ask for a repricing. If you want the numbers run for you, book a complimentary chat with Time Home Loans. Clients never pay a broker fee. This is general information only and does not take into account your objectives, financial situation or needs. Time Home Loans Pty Ltd is an Authorised Credit Representative under Australian Credit Licence 384324. Lending criteria, fees and charges apply. Seek advice before acting. Open that statement today.

Related: mortgage switching calculator · comparison rate calculator · refinance review

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