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What is refinancing a home loan?

December 27, 2024

The big question for many is this one – is refinancing a good idea? While saving money is the primary motivation for many Australians to refinance a loan, there are many other good reasons to consider if it’s right for you. Here’s our short guide to the questions typically asked by people who are considering changing home loan lenders.

What does refinancing mean?

In simple terms, refinancing involves moving from one type of loan to another with a different rate or terms, either with your current lender or a new one. It can give you more flexibility with your money and let you adapt your loan to your changing life circumstances.

If you’ve put off taking a careful look at your home loan, you could be losing money and missing out on an alternative which is a better fit for your circumstances and values. 

What are the benefits of refinancing a home loan?

Is refinancing a good idea? Why and when should you do it? Only you can decide what’s right for you. But if you’re thinking about changing home loan lenders, one or more of these refinance advantages may help with the decision-making.

1. Reduce the interest rate

Taking advantage of a lower interest rate is the number one reason people usually consider refinancing their mortgage. Reducing your monthly repayments can decrease financial stress and free up funds for other savings and spending goals. 

You can use our refinance calculator to compare your loan and determine the savings you could make by changing home loan lenders and moving to a more competitive rate.

2. Shorten the term of the loan

New life circumstances like a job change or the easing of other financial obligations might have put you in a better financial position than when you originally took out the loan. In this case you might want to refinance to pay off the loan more quickly and shorten the overall term. While your monthly payment will often increase if the interest rate is lower, you could shave years off your loan so you pay less interest over time.

3. Change to a different type of loan

Another benefit of refinancing a home loan is altering the type of loan you have. For example, as your priorities shift, you might want to take advantage of the added features offered by a variable-rate loan. Or you might switch from a variable to a fixed-rate loan to give you certainty while you need it.

Refinancing a mortgage can also give you access to a host of other great features, from additional payments and offsets to pause options and positive impacts. For example, our eco pause gives you the option to redirect funds to efficient energy upgrades like installing solar panels. We also offer parental pause, to support you in the early stages of welcoming a new member to the family.

4. Access equity and consolidate debt

Refinancing can help you get your hands on some much-needed funds. If you have equity in your home, you can refinance your mortgage and take out extra cash to pay for significant expenses like home improvements, holidays or your children's school or university fees.

Or if you have other sources of debt with high interest rates, you can increase your home loan and use the money to pay them off. At the very least, having a single repayment and 1 loan instead of 2 could give you some ‘administrative’ relief.

5. Values-alignment

Perhaps you’ve thought about where your investments are being used. Or whether your existing bank cares about the same things you do.  

When you think about it, your home is likely to be the most significant investment you’ll ever make, making the impact of the money you borrow far reaching. 

Values alignment is increasingly becoming a key factor for many making the switch to an alternative lender.

Is refinancing a good idea for me?

It’s well worth considering the benefits of refinancing a home loan and whether it's right for you. You can do this by talking to our team about our home loan options, or by getting an independent assessment of the costs and benefits.

At Bank Australia, we’re here to dispel the myths surrounding refinancing and help you every step of the way. And, even better, once you get the tick of approval we can help you with all the paperwork. That includes contacting your existing bank – so you don’t have to.

Keen to learn more? 

Explore the range of Bank Australia home loans or delve into the refinancing process some more.

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