How much can I save by refinancing my home loan?

How much could I save by refinancing my home loan?

How much can I save by refinancing my home loan? Refinancing could save you thousands.

Imagine you have a $550,000, 30-year mortgage. Refinancing to move from a 6.7% to 5.5% interest rate could save you $153,000 across the life of a loan - around $420 a month.

Amid the highest interest rates in over a decade, refinancing can get you a better interest rate than your current home loan; potentially paying off your mortgage faster and saving money in the long-term.

Investors and owner/occupiers can refinance through their existing lender or switch to a different credit provider. It is important to remember lenders don't reward loyalty and you can often get a better rate with a different lender.

This article covers everything you need to know about how much refinancing your home loan could save you.

UNO and Core Data research shows homeowners are an average of 30 basis points better off than those who don't shop around for a deal. This costs an average of $1092 annually or $32,760 across a 30-year loan.

Should I refinance my home loan?

Refinancing could save you hundreds of dollars a month which equates to thousands across the life of a mortgage.

If you have been with your lender for a while, and have a higher interest rate than they are offering to new customers, it could be worth refinancing your home loan.

As interest rates continue to increase, shopping around for the best deal is certainly worthwhile.

But if comparing interest rates and mortgage products isn't your forte, you're not alone. A UNO Broker could save you time and money by doing the hard work for you.

Top tips for refinancing your home loan

1. Avoid resetting your term back to 30 years - If you have a $550,000 mortgage with 25 years remaining at 6%, refinancing to a lower rate of 5.5% over 30 years could cost you an extra $64,000 in interest. While a lower rate may be appealing, it is important to calculate the cost across a new loan term.
2. Keep your monthly repayments the same - You could save $336 a month if your interest rate drops from 6.5 to 5.5%. Keeping your repayments the same could pay off your mortgage 4 years quicker and save $82,622 in interest.**
3. Move your repayment day - If you are refinancing, it is a good opportunity to make sure your mortgage payments align with your income. Consider making the new date a few days after you get paid to ensure you are always prepared for payments. You could also align repayment frequencies to your pay cycle.
4. Be mindful when consolidating debt - If you are refinancing to consolidate debt, be mindful of long-term interest costs. While a five-year car loan at 11% may sound bad, adding this to a 30-year mortgage could cost $17,900 MORE in interest across the life of a loan.*

What are the advantages of refinancing my home loan?

Refinancing offers many advantages including getting a better interest rate, reducing mortgage repayments and saving thousands across the lifetime of a loan.

It is also a good time to consider whether you want to unlock the equity in your home, consolidate debt, or change to a split home loan.

Start the refinance process now.

Get a better rate and lower your monthly repayments

Homeowners often refinance to get a lower interest rate or a better deal. As household budgets are feeling the pinch of rising living costs, shopping around for a different lender could give you some leeway in your budget.

It is also important to remember if interest rates decrease, lenders don't automatically pass on these changes to consumers. Never assume you have your lender's best rate - or even the best rate on the market.

UNO can compare rates from over 20 lenders to find you the best deal. You can unlock a better deal in just a few minutes online at any time.

Access the cash (equity) in your home

Some people refinance to access the cash (equity) in their home in order to pay for something big like renovations, a holiday or even investing in another property.

We’ve had customers who’ve used equity to pay off their solar installation and buy a car – the possibilities are endless and your broker can help you work out if it is the right option for you.

You can find more info on cash out refinance, here.

Consolidate debt

Refinancing is an opportunity to consolidate your debt by combining multiple small debts into one loan.

If you have several small debts such as credit card, car loans, or personal loans, debt consolidation can combine all these loans into your mortgage.

This will help simplify your finances by making payments easier to manage. It could even work out cost-effectively given credit card interest rates can range between 10-21.99% p.a.

It does, however, mean paying interest on the combined balance for a longer period of time (the length of the home loan), so it’s important to make additional repayments to pay off the enlarged loan sooner – or pay off a big chunk when you can.

Read more: How debt consolidation can simplify your finances

Switch from a variable rate to a fixed one, or vice versa

Lenders typically move customers from a fixed rate onto a higher rate (known as the standard variable rate) at the end of their fixed term.

This is a good opportunity to take charge of your rate by refinancing your loan.

Watch: should I fix my rate or stay variable?

You could consider locking in your rate to ensure a stable budget or even a split home loan with variable and fixed interest rates.

When can you refinance your mortgage?

You can generally refinance your mortgage at any time.

It is important to remember there could be costs involved such as break costs (break fees). These are fees charged by your lender if you leave (break) a mortgage term early. Depending on where you are in the fixed term, the break fees could be anywhere from a few hundred dollars to a few thousand.

Sometimes, the savings you can make on a loan will negate the break costs. A UNO Broker can help you calculate whether it is a good idea to refinance your home loan.

If you’re on a variable rate, you won’t have to pay any break costs. However, there are settlement costs and other fees with any refinancing.

The deferred establishment fee (penalty rate) was abolished by the government in 2022.

Is it bad to refinance? What are the disadvantages or refinancing?

• Fees - Some lenders charge fees such as break costs when you refinance your home loan. It is important to consider the costs of switching your loans against the potential savings - a break-even analysis. A UNO Broker can help advise on this.
• Credit score - When you apply to refinance, a lender will check your credit score. This credit enquiry can come up on your credit report and having excessive enquiries could impact your score.
• More debt - If you refinance to access equity, it is important to remember you're digging into the money you've already paid off your loan.
• Loan terms - If you've been paying off a 30-year loan for five years and decide to refinance, you may need to revert your loan term to 30 years.

How much does it cost to refinance a home loan?

Refinancing usually doesn't cost you anything directly. However, you may have to pay some fees, settlement costs, or break costs. These can often be rolled into your new mortgage.

A UNO Broker can help determine whether it's worth switching home loans.

Plus, some lenders are offering generous cash backs so take this into account when calculating costs of refinancing.

Which documents are needed to refinance a home mortgage?

When you refinance a home loan, you’ll be expected to provide proof of income and expenses (e.g. payslips, bank statements) and photo ID.

You’ll also need to show you have a good history of making payments (most lenders will want to see at least 6 months of solid payment history). This will also help you qualify for a better rate.

You can find more information about how to refinance and the home loan application process here. 

How many times can you refinance your mortgage?

There is no limit to how many times you can refinance, although you will face a small impact on your credit score each time you do. Note that enquiring about a loan through UNO doesn’t show up on your credit report. How good is that?!

Does refinancing impact your credit score?

Yes it can. When you apply for any loan, your lender will check your credit score. Having a lender review your credit history shows up in your report as a credit enquiry.

When UNO makes an initial enquiry, it will not show up on your credit report.

Each new enquiry by a lender can knock a few points off your credit score. UNO can help you find the best deal from over 20 lenders so you don't need to make excessive enquiries.

What are today’s mortgage rates?

Interest rates fluctuate in line with the official cash rate set by the Reserve Bank of Australia (RBA), which is used as a basis.

When the RBA moves interest rates up, many banks and lenders choose to move their interest rates up too. However, when the RBA drops interest rates, many banks and lenders will also drop their rates – although they don’t have to. 

The other thing to know is that not all rates are available to all people. Your rate is often determined by a wide variety of factors including how much equity you have in your home, your credit score, and your employment situation.

Because rates change, it’s a good idea to keep an eye on them and see if the rate you’re currently on is still the best one for your situation.

Further reading

• Fixed vs variable rates explained
• How debt consolidation can simplify your finances

The information in this article is not intended as financial advice.