If you’ve had your home loan for a few years, you’ve probably heard the term thrown around at a barbecue or seen it in a bank ad, but what is refinancing exactly? In simple terms, refinancing means swapping your current home loan for a new one, either with your existing lender or a different one altogether. For many Perth homeowners, it’s a practical way to reduce repayments, access built-up equity, or find a loan structure that better suits their circumstances. This guide walks through what refinancing involves, why homeowners choose to do it, and how the process actually works.
What Is Refinancing? What It Means for Your Home Loan
Refinancing isn’t about starting your home loan from scratch. It’s about swapping the loan you have now for a different one, whether that’s with your current lender or a new one, so you end up on terms that better suit where you’re at. The new lender pays out what you owe on your existing mortgage, and from there you move onto the new loan, which might come with a different interest rate, a different structure, or a different repayment length.
It’s a common misconception that refinancing home loan arrangements only happen when something has gone wrong with the original loan. In reality, most homeowners refinance simply because their circumstances, or the lending market, have shifted since they first signed on. A loan that suited a first home buyer five years ago might not suit a growing family or a changed income today.
Refinancing your mortgage isn’t as simple as flicking a switch, either. Because your property still secures the new loan, the lender needs to reassess it on its own merits, which means a fresh application, supporting documents, and a valuation. We’ll walk through exactly how that works further down. For an independent overview, ASIC’s MoneySmart guide to switching home loans is a useful starting point.
Common Reasons Homeowners Refinance
Perth homeowners choose to refinance for a range of reasons, and the right one depends on your goals and financial position.
The most common include:
- Rate reduction refinancing: Moving to a more competitive interest rate can lower your repayments and reduce the total interest paid over the life of the loan.
- Term adjustment refinancing: Shortening your loan term can help you pay off your mortgage sooner, while extending it can ease pressure on your monthly budget.
- Switching between variable and fixed rates: Some homeowners want the certainty of fixed repayments, while others prefer the flexibility that comes with a variable rate.
- Accessing equity: If you’ve built up equity in your property, refinancing can let you access some of that value. This is known as cash-out refinancing, which we cover in more detail below.
Whatever your reason, it’s worth talking through your goals with a broker before settling on an approach. Our refinance home loan options are built around finding what actually fits your situation, not a one-size-fits-all fix.
How Does Refinancing Work?
Refinancing follows a fairly consistent process, regardless of which lender you end up with.
Review your current loan and compare options. Start by looking at what you’re currently paying, then compare it against other home loan refinance options on the market. This is where a broker earns their keep, since comparing dozens of lenders yourself is time-consuming and it’s easy to miss options that aren’t heavily advertised. As WA’s Broker of the Year, we’ve guided plenty of Perth homeowners through exactly this comparison stage.
Apply with supporting documents. Once you’ve settled on a direction, you’ll submit a formal application to the new lender, along with supporting documents such as proof of income, identification, and details of your existing mortgage.
The lender arranges a property valuation. Because your home still secures the loan, the lender will organise an independent valuation to confirm its current value. This step matters, since it affects how much equity you have to work with and how the lender assesses your application.
Approval and settlement. Once the lender is satisfied, they’ll approve the new loan and settlement follows. Your new loan pays out the old one, your existing mortgage is discharged, and you move onto your new terms.
If refinancing turns out not to be the right fit and you’re weighing up a new loan altogether, our home loans team can talk you through the full range of options available.
Frequently Asked Questions
What Is Cash-Out Refinancing?
Cash-out refinancing is when you refinance for more than you currently owe on your home loan and take the difference as a lump sum. This is only possible if you’ve built up sufficient equity in your property, and the amount available depends on your equity position and the lender’s requirements. Homeowners commonly use it to fund renovations, consolidate other debts, or cover a major expense.
What Costs Are Involved in Refinancing?
Refinancing typically comes with a handful of costs to budget for, on top of your new loan repayments. These can include a discharge fee from your current lender, an application or establishment fee with the new lender, and a property valuation fee. You may also encounter government registration charges, and depending on your equity position, lenders mortgage insurance. Because these costs vary by lender and by loan, it’s worth getting a clear breakdown before you commit, so you can weigh them against any potential savings.
Should I Use a Refinance Calculator Before Refinancing?
A refinance calculator can be a useful starting point, comparing your current repayments and costs against a new loan scenario to get a rough sense of whether refinancing is likely to be worthwhile. It won’t capture every detail of your situation though, particularly fees, loan features, or eligibility. Treat it as a first step, then speak with a broker to get the full picture before making a decision.
Conclusion
Refinancing isn’t a one-size-fits-all decision, and what works for one Perth homeowner might not work for another. Hopefully this has answered what is refinancing, the main reasons homeowners consider it, and how the process runs from application through to settlement, so you’re in a better position to work out whether it’s worth exploring for your own home loan.
If you’re weighing up your options, get in touch with our Perth mortgage brokers for a conversation about what refinancing could look like for you.
This article is general information only and doesn’t take into account your personal financial situation, needs, or objectives. Before making any decisions about refinancing, speak with a qualified mortgage broker or financial adviser about your individual circumstances.