Do you know refinancing can save you thousands?

What refinancing actually means

Refinancing means replacing your current home loan with a new one, either with your existing lender or a different one. The goal is usually to reduce your interest rate, access equity, or switch to a loan with features that suit your current needs.

For principals managing school budgets and long-term financial planning, the same discipline applies to your mortgage. A loan that worked when you first bought might no longer be the most cost-effective option, especially if you took it out when rates were higher or your financial position has improved.

When refinancing makes sense for school leaders

Refinancing makes sense when the ongoing savings or benefits outweigh the costs of switching. This typically happens when you can reduce your interest rate by at least 0.5%, when your fixed rate period is ending, or when you need to access equity for another purpose such as investment or renovations.

Consider a principal who locked in a fixed rate three years ago at 4.8%. That fixed rate expiry is approaching, and the lender's current variable rate is 6.2%. Refinancing to a variable rate at 5.9% with another lender means ongoing monthly savings, even after accounting for the discharge fee and application costs. Over a remaining loan term of twenty years, the difference adds up significantly.

The costs to exit your current loan include discharge fees, usually between $300 and $500, and potential break costs if you are leaving a fixed rate early. The new loan will have application fees and valuation costs, typically another $600 to $1,000. If your rate reduction saves you more than these costs within the first twelve months, refinancing is worth pursuing.

Accessing equity through refinancing

Refinancing also allows you to access equity in your property without selling it. Equity is the difference between what your property is worth and what you owe on it. If your home has increased in value or you have paid down the loan, you may be able to borrow against that equity.

This is particularly relevant for principals looking to buy an investment property or fund a major renovation. Lenders will usually allow you to borrow up to 80% of your property's value without needing to pay lenders mortgage insurance again, depending on your income and loan structure.

As an example, a principal in a metropolitan area purchased a home several years ago. The property has since increased in value, and the loan balance has reduced. Refinancing allows them to access that equity while also moving to a lower interest rate. The released funds can then be used as a deposit on an investment property, with the interest on that portion of the loan potentially tax-deductible. This approach, sometimes combined with strategies like debt recycling, can improve cashflow and build wealth over time.

How the refinance process works

The refinance process begins with a loan review to understand your current position and what you want to achieve. This includes checking your loan balance, current interest rate, remaining loan term, and any features you are using such as offset accounts or redraw facilities.

Once you know what you are paying now, you can compare that against what is available. Refinance interest rates vary depending on the loan amount, property valuation, and your income. A broker can assess multiple lenders to find a loan that matches your needs without you needing to apply to each one individually.

After selecting a lender, you submit a refinance application with supporting documents such as payslips, tax returns, and proof of your current loan. The new lender will arrange a property valuation to confirm the security. Once approved, the new lender pays out your old loan, and you start making repayments under the new terms. The entire process usually takes three to six weeks, depending on how quickly documents are provided and the lender's turnaround time.

What you can improve by refinancing

Refinancing is not only about reducing your interest rate. It also gives you the opportunity to improve your loan structure, consolidate debt, or add features that were not available when you first borrowed.

If you are paying too much interest because your current lender has not passed on rate cuts, switching to a lender with a lower variable interest rate will reduce your monthly repayments. If you have credit card debt or a car loan, you may be able to consolidate those into your mortgage at a lower rate, which can improve cashflow even though it increases your overall loan amount.

You might also refinance to switch from a variable rate to a fixed rate if you want certainty over your repayments, or the other way around if you want flexibility. Some principals refinance to add an offset account, which reduces the interest charged on your loan without locking funds away, or to access redraw if you want to make extra repayments and withdraw them later.

Why your current lender might not offer the lowest rate

Lenders often reserve their most competitive rates for new customers. If you have been with the same lender for years, you may be paying a higher rate than someone who refinanced recently, even if your financial position is stronger.

This is common across the industry. Lenders assume that existing customers are less likely to switch, so they focus their discounting on attracting new borrowers. A home loan health check will show whether you are on a loyalty tax rate or whether your current lender is still competitive.

In our experience, principals who have not reviewed their loan in more than two years are often paying at least 0.6% more than they need to. That difference can mean hundreds of dollars per month, depending on your loan balance.

Costs to consider before you switch

Refinancing is not always the right move. You need to weigh the costs of switching against the ongoing savings. Discharge fees, application fees, valuation costs, and potential break costs can add up to several thousand dollars if you are exiting a fixed rate early.

Break costs apply when you leave a fixed rate loan before the fixed period ends. The amount depends on how much time is left on your fixed term and the difference between your fixed rate and the current market rate. If rates have fallen since you fixed, the break cost can be substantial. If rates have risen, the break cost may be zero.

Before committing to a refinance, calculate how long it will take for your savings to recover the upfront costs. If you plan to sell your property or pay off your loan within a year or two, refinancing may not be worth it. If you are staying put for the medium to long term, the savings will compound.

Call one of our team or book an appointment at a time that works for you. We will run the numbers based on your current loan and show you exactly what refinancing would cost and what you would save.

Frequently Asked Questions