How a Mortgage Broker Refinance Works and Helps You Switch

A mortgage broker refinance is when you use a broker, rather than going straight to a single bank, to move your existing home loan to a new loan or a new lender. A broker compares loans across a panel of lenders, handles the paperwork and works out whether switching is likely to leave you better off once the costs are counted. Whether that suits you depends on your circumstances and lender criteria, but for many people a broker takes the legwork out of refinancing.

This guide explains what a broker actually does when you refinance, how using a broker compares with going direct to your bank, and the questions worth asking before you start.

What refinancing means

Refinancing, also called switching home loans, means moving your mortgage to a new loan product or a new lender. People usually do it to chase a lower interest rate, change loan features such as an offset account or redraw, consolidate debt, or access equity for renovations. According to ASIC’s Moneysmart guide to switching home loans, there can be an interest rate difference of more than 2% in variable home loan rates on the market, so the loan you signed up for years ago may no longer be competitive.

Switching is not automatically worthwhile. The right move depends on your loan balance, how long you have left, the fees involved and what a new lender will offer you. That is the gap a broker is meant to fill.

What a mortgage broker does when you refinance

A mortgage broker is a licensed credit professional who arranges home loans on your behalf. When you refinance through a broker, they typically:

• Review your current loan, rate and features so there is a clear starting point.
• Compare loans across the lenders on their panel, not just one bank.
• Estimate whether you may save after the switching costs are counted.
• Prepare and lodge the application and supporting documents.
• Liaise with the new lender through to settlement, then help discharge the old loan.

A broker can also point out when refinancing may not be in your interest, for example when the fees outweigh the savings, or when staying put and renegotiating is the simpler path. A good broker explains the trade-offs rather than pushing a switch.

Who may benefit from using a broker to refinance

Using a broker to refinance tends to suit people who do not have time to compare lenders themselves, who have a less straightforward situation such as self-employment or multiple properties, or who simply want a second opinion on whether their current rate is still fair. It is not the only way to refinance, and some borrowers are comfortable going direct. The point is to choose with your eyes open.

Broker vs bank refinance

The broker vs bank refinance question comes down to choice and effort. Going direct to your own bank is quick and you already have a relationship, but you only see that one lender’s products. A broker compares several lenders at once, which can surface options you would not find on your own.

Brokers in Australia must act in your best interests under the law, which is a duty that applies to the credit assistance they provide. That does not guarantee a particular outcome, but it does mean the recommendation should be based on your needs rather than which lender pays the most.

One practical note on cost: brokers are usually paid a commission by the lender, so there is often no direct fee to you. Ask each broker how they are paid and which lenders sit on their panel, so you understand any limits on the comparison. For a deeper look at how brokers work and how they are paid, see First home buyer mortgage broker.

The refinancing steps a broker handles

Refinancing follows a fairly set path, and a broker manages most of it for you:

Costs and equity worth checking

Two figures shape most refinancing decisions.

The first is your equity. If you have less than 20% equity in your home, a new lender may require lenders mortgage insurance, usually shortened to LMI, and that cost may outweigh the savings from a lower rate. A broker can estimate your loan-to-value ratio, often shortened to LVR, before you apply. To understand how that ratio is worked out, see What is lvr first home buyer and What is lenders mortgage insurance.

The second is the cost of switching itself. Small differences in your mortgage interest rate can make a big difference to the long-term cost of your home loan, but the fees above can eat into that saving. The Moneysmart mortgage calculator lets you estimate repayments and explore the effect of a higher or lower interest rate, though it is a model not a prediction, and it does not include up-front costs such as loan establishment fees. A broker can run the numbers with those costs included so you see the real recovery period.

If you want a quick sense of the difference before talking to anyone, try the refinance calculator to estimate repayments at a new rate.

When you compare loans, look at the comparison rate rather than only the headline interest rate, because it bundles in most fees. For more on that figure, read Comparison rate explained.

How to choose a broker for refinancing

A few checks help you pick well:

• Confirm they hold an Australian credit licence or are an authorised credit representative.
• Ask how many lenders are on their panel and how they are paid.
• Ask them to show you the comparison, including the comparison rate, not just the headline rate.
• Check they have explained the fees and the break-even point in writing.

If something goes wrong and you cannot resolve it with the broker, you can raise a complaint with the Australian Financial Complaints Authority, known as AFCA, which provides an external dispute resolution service.

Frequently asked questions

Talk to the team at Finance Lab

If you are weighing up whether to refinance, the team at Finance Lab can review your current loan, compare options across lenders and work out whether switching is likely to leave you better off once the costs are counted. Get in touch to talk through your situation.