Understand how refinancing works

Refinancing is when you swap your existing mortgage for a new mortgage provided either by a different lender or by your existing lender in order to be in a better overall financial position.

For example: A borrower with a 30-year $300,000 principal and interest loan at 5.64% (the current average variable rate according to RateCity.com.au) can reduce the total interest owed by almost $60,000 over the loan term if they switches to the current lowest variable rate of 4.74%.

Of course, this does not take into account possible exit fees, set-up fees, on going fees, minimum deposit requirements or lenders mortgage insurance, but it does provide an idea of the difference switching can make to your finances.

When you refinance, your current lender discharges your existing mortgage debt and a new mortgage is provided over your home, with a new set of fees, terms and conditions.

When you refinance you have to apply for the new mortgage in the same way you applied for your existing mortgage –fill in an application, pay the associated fees (these can include an application fee, property valuation fee, stamp duty in some states, lenders mortgage insurance, etc.) and receive approval for the new loan.