The Refinance Process Steps, Explained From Start to Finish

The refinance process steps are the ordered moves you make to replace your current home loan with a new one, usually to chase a lower rate, lower fees, or features that suit you better. This guide walks through how to refinance step by step, in plain order, from the first phone call to your current lender through to settlement of the new loan. None of it is a promise that switching will leave you better off. Whether it does depends on your circumstances and each lender’s criteria, so the steps below are about gathering the facts, not about telling you to switch.

This is general information only. The work here draws on the Australian Securities and Investments Commission’s MoneySmart service, the government’s independent money guidance.

Refinancing means closing your existing home loan and opening another, either with a new lender or with your current one on a different product. The refinancing steps are similar either way, and most of the effort sits in the early stages, where you check the numbers before you commit to anything.

If you are weighing up a switch, the rate, costs and lender decisions come together on our refinance home loans hub.

Step 1: Ask your current lender for a better deal

The first of the refinance process steps is the one most people skip. MoneySmart suggests telling your current lender you are planning to switch to a cheaper loan offered by a different lender. Your existing lender may reduce the rate to keep your business, which can save you the cost and effort of moving at all. It costs nothing to ask, and it gives you a benchmark to measure any new offer against.

If your lender will not move, you have lost nothing, and you have a clearer picture of what you are comparing.

Step 2: Check your equity and whether LMI applies

Before you go further, work out how much equity you hold. Equity is the share of your home you own outright, the value of the property less what you still owe.

This matters because of Lenders Mortgage Insurance, usually shortened to LMI. MoneySmart points out that LMI may apply when switching if you have less than 20 per cent equity in your home. Having at least 20 per cent equity also gives you a stronger position when negotiating with your current or a new lender.

If your equity has grown above 20 per cent since you first borrowed, you may avoid LMI on the new loan. If it has not, the LMI cost could outweigh the saving from a lower rate, so this is a step to settle early. Our guide to what lenders mortgage insurance is explains who it protects and how it is calculated, and how to avoid LMI covers the ways borrowers reduce or sidestep it.

Step 3: Add up the cost of switching

This is the heart of the refinance process. MoneySmart is direct about it: compare all the fees and charges before you decide, because the cost of switching can outweigh the savings. A lower rate does not help if the costs of getting there eat the gain.

The switching costs MoneySmart names are worth listing in one place.

The amounts vary by lender, so the step here is to get each cost in writing.

Step 4: Compare loans on the comparison rate

When you weigh up a new loan, look past the headline interest rate. A comparison rate is a single figure of the cost of the loan that includes the interest rate and most fees, so it can show the true cost beyond the advertised rate. Comparing on the comparison rate stops a low headline rate with high fees from looking better than it is. Our comparison rate explained guide goes deeper on why the comparison rate sits above the headline rate and what it does and does not capture.

Think about the features you would actually use as well. An offset account can reduce the interest charged by holding your savings against the loan balance, and a redraw facility lets you access extra repayments you have made. Features can be worth paying for if you use them, and a waste if you do not.

It also helps to see what those rates turn into each month, which our guide to home loan repayments walks through.

Step 5: Keep the loan term in check

Refinancing often starts a fresh loan term, and that can quietly cost you. A shorter loan term means higher repayments but less total interest paid, while a longer term means lower repayments but more total interest over the life of the loan.

MoneySmart suggests confirming the new loan length so the new term lines up with the years remaining on your current mortgage. Stretching a loan back out to 30 years can lower the monthly figure while adding to what you pay overall, so check the term, not just the rate.

Step 6: Run the numbers and apply

Once you have the rate, the costs, and the term in front of you, work out whether switching is worth it. MoneySmart suggests using a switching calculator to see whether the savings outweigh the costs and how long it takes to recover them.

If the numbers stack up, the formal refinance steps follow a set order.

A broker can keep that part moving and give you a realistic timeframe for your situation.

How the refinance process steps fit together

The refinancing steps run from your current lender, to your equity and LMI position, to the full cost of switching, to comparing on the comparison rate, to checking the term, and finally to the calculator and the application. Most of the decision is made in the early steps, where the numbers tell you whether to keep going.

If you want a hand working through these refinance process steps for your own numbers, the team at Finance Lab can talk it through with you.