Refinancing a home loan: the steps, the costs and the lender's checks

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Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

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Refinancing means replacing one home loan with another. The home stays the same, the debt stays roughly the same, and the terms change: the interest rate, the lender, the features, sometimes the length of the loan. It is the main tool a borrower has when rates rise, and it is used on a large scale. The Australian Bureau of Statistics counted 110,297 owner-occupier home loans refinanced in the June quarter of 2026 alone.

The reason is simple. Moneysmart, the consumer finance site run by the Australian Securities and Investments Commission, says there can be a difference of more than 2 percentage points between variable home loan rates on the market. On a large debt that gap is thousands of dollars a year. What is less well understood is that a refinance is a complete loan application. The new lender owes the borrower nothing for years of repayments made on time to someone else, and it will check income, spending, debts and the value of the home as if the loan were being written for the first time.

This guide walks through the process as it works for a home in Queensland: the two kinds of refinance, the order of the steps, each cost and who charges it, what the lender looks at again, and the traps that turn a lower rate into a dearer loan. It describes the general rules and is not advice for any one household.

Two kinds of refinance

The ABS separates refinancing into two types, and the distinction is useful.

An internal refinance stays with the same lender. The borrower asks for a better deal and is moved to a different product or a lower rate, or the loan is restructured, for instance by splitting it into fixed and variable parts. In the June quarter of 2026 owner-occupiers completed 43,848 of these, worth $24.8 billion.

An external refinance moves the debt to a different lender. The new lender pays out the old loan, the old mortgage over the property is released and a new one is registered. Owner-occupiers completed 66,449 of these in the same quarter, worth $41.9 billion. About six in every ten refinances, in other words, involved a change of lender.

The internal route is quicker and cheaper, because no mortgage changes hands and the lender already knows the customer. The external route usually offers the larger saving, because a lender prices more sharply to win a new customer than to keep one who has not asked. Most of what follows concerns the external switch, since that is where the costs and the checks sit, but the first step is the same for both.

Start by asking the lender you already have

Moneysmart's first piece of guidance on switching is to tell the current lender that a move is being considered. A lender that is about to lose a loan has a reason to match the market, and an existing customer with a clean record costs it nothing to assess.

Two things strengthen the request, according to Moneysmart: equity of 20 per cent or more in the home, and a good credit score. A third is a specific rate from a competitor. A request that names the product, the rate and the comparison rate on offer elsewhere is harder to set aside than a general request for a discount.

If the lender agrees, the result is an internal refinance or simply a repricing of the existing loan, often within days and with a small switching fee or none. If it declines, or offers less than the market, the borrower has lost nothing and has a figure to beat.

It is worth doing this before any formal application elsewhere, because an application leaves a mark. Moneysmart's guide to credit reports explains that a report records the credit applications a person has made. Several applications in a short period, each visible to the next lender, can raise questions that one would not.

The steps of a switch, in order

Once the decision is to move, the process has a fixed order. From application to settlement it commonly takes several weeks, most of it waiting for documents to move between the two lenders.

Two documents make the comparison in the second step easier. A Key Facts Sheet is a standard one-page summary a lender must provide on request; Moneysmart lists what it shows, including the interest rate, the comparison rate, the monthly repayment, the total to be repaid and the establishment and ongoing fees. Because every lender uses the same layout, two sheets can be read against each other line by line. The comparison rate is a single figure that folds most fees into the interest rate, so a loan with a low headline rate and high fees shows up as dearer than it first looks.

At settlement the borrower does nothing in person. The lenders, or their settlement agents, exchange the funds and the documents. In Queensland the release of the old mortgage and the registration of the new one are recorded on the title by Titles Queensland, and repayments to the new lender begin from the date in the loan documents.

What switching costs, and who charges it

Moneysmart lists the fees to weigh before switching. Some are charged by the lender being left, some by the lender being joined, and some by the state.

Two points are specific to Queensland. The state does not charge duty on a mortgage itself, so a refinance that leaves the ownership of the home unchanged carries no duty. Moneysmart's general warning about stamp duty matters here only when the refinance is also used to change who owns the property, such as adding or removing a name on the title, which is a transfer and is assessed by the Queensland Revenue Office under its own rules. And the titles office fees are fixed charges set each financial year, not a percentage of the loan.

Exit fees charged as a penalty for leaving a variable loan early are not on the list, and for a variable loan the cost of leaving is normally limited to the discharge fee. Fixed loans are different, and are covered below.

Taken together, the unavoidable costs of a straightforward switch on a variable loan with good equity usually come to a figure in the low thousands at most. The cost that can overturn the sums is lenders mortgage insurance.

The 20 per cent line and lenders mortgage insurance

Lenders mortgage insurance, or LMI, is a one-off premium that protects the lender, not the borrower, if a loan fails and the sale of the home does not cover the debt. It is charged when the loan is more than 80 per cent of the property's value.

Moneysmart is direct about what this means for a switch: a borrower with less than 20 per cent equity will pay LMI when refinancing, and that cost can cancel the saving from a lower rate. The premium paid when the home was bought does not carry across to a new lender. Moneysmart suggests asking the current lender whether part of the original premium can be refunded when the loan is closed, which some policies allow in the early period of a loan.

This is where the valuation decides the outcome. Equity is the value of the home less the debt, and the value is the new lender's figure, not the price paid and not an online estimate. A borrower who bought with a 10 per cent deposit needs the combination of repayments made and price growth to lift equity above 20 per cent before a switch avoids the premium.

In much of Queensland the past five years did that work quickly. The direction has now turned in places: Cotality's index showed Brisbane home values down 0.6 per cent in July 2026. A recent buyer whose equity sat just above the line a few months ago may find the valuation puts it just below.

What the new lender checks again

A refinance application is assessed under the same responsible lending rules as a first loan. The new lender has to satisfy itself that the borrower can meet the repayments, and it does so from documents, not from the fact that the old loan has been paid on time.

Income. Payslips, tax returns for the self-employed, and evidence of other income. A change of job, a move from salaried work to contracting, or a period of parental leave since the original loan all change the answer.

Spending. Lenders ask for a breakdown of living costs and compare it with bank statements. Children, school fees, a car loan or a higher grocery bill since the first application are all in the figures.

Other debts. Credit cards are assessed on their limits, not their balances. Personal loans, buy now pay later accounts and any other mortgages are counted.

Credit history. Moneysmart's guide to credit reports sets out what the lender sees: credit products held over the past two years, a two-year repayment history showing whether each payment was made on time, the applications made for credit, and any defaults, which stay on the report for five years. A hardship arrangement appears for the months it was in place. A borrower can obtain a free copy of the report every three months from each credit reporting agency and correct errors before applying.

The repayment test. The lender does not test the loan at the rate on offer. It adds a margin, as the banking regulator requires, and checks that the repayments could still be met at the higher rate. After three cash rate increases in 2026, a household that passed that test comfortably three years ago may pass it narrowly, or not at all, even though it has never missed a payment.

Debt against income. Since 1 February 2026 the Australian Prudential Regulation Authority has limited each bank to writing no more than 20 per cent of its new owner-occupier lending, and 20 per cent of its new investor lending, at a debt of six times income or more. The limit applies to the bank's lending as a whole, not to any one application, but it gives lenders a reason to look closely at large loans on modest incomes.

The property. The lender orders a valuation, sometimes by a desktop model and sometimes by an inspection. The figure sets the loan-to-value ratio, and with it both the LMI question and, at many lenders, the interest rate tier.

A borrower who cannot pass these checks is not without options. The present lender can still be asked for a better rate, since repricing an existing loan does not require a new approval of the same kind.

A worked example, and the trap of the longer term

The figures below are an illustration, not market data. Assume a Queensland owner-occupier owes $600,000 with 25 years left on a variable loan at 6.39 per cent, and is offered 5.99 per cent by another lender. Assume switching costs of $1,450 in total: a $350 discharge fee, a $600 application fee and $500 in registration and settlement charges. Equity is above 20 per cent, so no LMI applies.

Keeping the 25-year term, the switch saves $148 a month, or about $1,775 a year. The $1,450 of costs is recovered in the tenth month, and over the full term the interest bill is $44,388 lower.

The third row shows the trap Moneysmart warns about. New loans are often written for 30 years by default. The repayment falls further, to $3,593, which looks like the better deal. But five extra years of interest lifts the total to $693,641: $134,999 more than switching on the same term, and $90,611 more than not switching at all. A lower rate has produced a dearer loan.

The protection is to ask for a term that matches the years remaining, or to take the longer term and keep paying the old amount, so the extra goes onto the principal. The break-even month is the other figure to work out before committing: switching costs divided by the monthly saving. A household that expects to sell within a year or two may never reach it.

Fixed rates and break costs

A borrower on a fixed rate who refinances before the fixed period ends will usually be charged a break cost. It compensates the lender for the difference between the rate the borrower agreed to pay and what the lender can now earn on the money, over the time left.

That makes the cost depend on the direction rates have moved. When market rates have fallen since the loan was fixed, the lender loses by being repaid early and the break cost can run to many thousands of dollars. When rates have risen, as they have in 2026, the lender can relend at a higher rate and the cost is often small. It can never be assumed, though: the figure moves from day to day, and the only reliable number is a written quote from the lender, requested in the first step.

A split loan can be refinanced in part in some cases, leaving the fixed portion in place until it expires, but both portions are normally secured by the same mortgage, so in practice most borrowers wait or pay the cost.

Cashback, honeymoon rates and features

Lenders compete for refinancers with more than the rate. A cash payment on settlement, a discounted rate for the first year or two, or a waived fee can each be worth having, and each can hide a loan that costs more over time. A cashback is received once; a rate that is higher by a tenth of a percentage point is paid every month for as long as the loan lasts. An introductory rate reverts to a standard rate that should be compared with the market in its own right. This is the purpose of the comparison rate and the Key Facts Sheet: they put the whole cost in one place.

Features deserve the same test. An offset account, where savings reduce the balance on which interest is charged, can save more than a slightly lower rate for a household that keeps a large balance in it, and nothing for one that does not. Moneysmart notes that features such as offset accounts may come with extra charges. The question is whether the feature will be used.

Where brokers fit

Most borrowers who switch do so through a mortgage broker. The Mortgage and Finance Association of Australia reported in June 2026 that brokers arranged a record 81 per cent of new residential home loans in the March quarter. A broker compares products across a panel of lenders, prepares the application and manages the paperwork between the two lenders. Brokers are paid commission by the lender that writes the loan, which they must disclose, and are required by law to act in the borrower's best interests.

A borrower can equally apply directly to a lender. The assessment is the same either way, and so are the costs.

When a refinance is refused

Some borrowers find they cannot move. Their income has fallen, their spending has risen, the valuation has come in low, or the repayment test at a higher rate no longer works. The loan they have is one they are paying, but no other lender will write it.

Three things remain open. The existing lender can be asked to reprice. A refusal from one lender does not bind another, because each has its own policy on matters such as casual income or self-employment, although repeated applications show on a credit report. And if the underlying difficulty is meeting the repayments at all, the path is different: every lender is required to consider a request for a hardship arrangement, and Moneysmart says a lender must respond to such a request within 21 days. Free financial counselling is available through the National Debt Helpline on 1800 007 007.

Refinancing rewards the borrower who starts with the full picture: the payout figure, the costs on both sides, a realistic view of the valuation and a term that matches the years left. With those in hand, the comparison is arithmetic.

Kooky, from Shaka

Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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