Understanding Home Loan Refinancing
Refinancing a home loan is a smart financial move that many Melbourne homeowners consider at some point. In simple terms, to refinance home loan in Melbourne means replacing your existing mortgage with a new one—either with the same lender or a different one.
Whether you’re looking for a lower interest rate, reducing your monthly repayments, consolidating debt, or accessing your home’s equity, refinancing can be a game-changer.
Melbourne’s property market is dynamic, and interest rates fluctuate. Taking advantage of lower rates when they become available could reduce the amount of interest you pay over the life of your loan. On the other hand, if your financial situation has changed—perhaps you’ve received a pay rise or started a new business—refinancing can help you adjust your mortgage to align with your new goals.
That being said, the key to an efficient refinancing process is preparation. Lenders will require specific documents to assess your financial position, and having everything organised in advance may help avoid delays and complications. In this guide, we’ll walk you through exactly what documents you need to refinance your home loan in Melbourne, so you can approach the process with confidence.
Why Refinance Your Home Loan?
Refinancing isn’t just about switching lenders—it’s about making your mortgage work smarter for you. Whether you want to reduce your repayments, access extra funds, or help with managing your finances more effectively, there are plenty of good reasons to refinance your home loan in Melbourne. Here are some of the biggest advantages:
1. Lower Interest Rates Can Reduce the Amount of Interest You Pay Over The Life Of Your Loan
One of the most common reasons homeowners refinance is to secure a lower interest rate. Even a small reduction in your rate can have an impact on the amount of interest you pay. With Melbourne’s competitive lending market, lenders are often adjusting their rates to attract new borrowers. If you’ve had your mortgage for a while, chances are there’s a more competitive rate out there.
2. Access to Equity for Renovations or Investments
As Melbourne’s property values continue to rise, many homeowners have built up equity in their properties—the difference between their home’s market value and the remaining loan balance. Refinancing potentially allows you to tap into that equity to fund renovations, buy an investment property, or even start a business.
Example: If your home in Preston has increased in value from $700,000 to $900,000, and you still owe $400,000, you may be able to refinance and access some of the $500,000 in equity. That could mean finally renovating your outdated kitchen or securing a deposit for a second property. NB you still need to keep your LVR < 80% to avoid paying Lenders Mortgage Insurance (LMI) so in this example, your accessible equity is $320,000.
3. Consolidating High-Interest Debts
If you have multiple debts—such as credit cards, personal loans, or car loans—a debt consolidation refinance may allow you to roll them into your mortgage. Since home loan interest rates are usually much lower than credit card rates, this can potentially reduce your overall repayments, helping manage your finances more effectively and also improving your cashflow position.
Tip: Before consolidating debt into your home loan, consider the long-term impact. While your monthly payments may be lower, stretching short-term debt over a 20- or 30-year mortgage could mean paying more in interest over time.
Understanding the Refinancing Process
Refinancing a home loan might seem like a complex process, but breaking it down into smaller steps can make it much more manageable. If you’re thinking about refinancing your home loan in Melbourne, here’s what you can expect:
1. Reviewing Your Current Loan
Before making any moves, take a close look at your existing mortgage. What’s your current interest rate? Are there any fees for paying off your loan early? How much do you still owe? Understanding these details will help you compare offers and determine if refinancing is the right choice.
Tip: Check if your loan has a fixed-term break cost or exit fees—some lenders charge penalties for refinancing too early.
2. Setting Your Financial Goals
Refinancing should align with your financial objectives. Ask yourself:
- Do I want to lower my monthly repayments?
- Am I looking to access equity for renovations or investments?
- Would consolidating my debts help in the management of my finances or improve cashflow?
Having a clear goal will help you choose the right refinancing option for your situation.
3. Researching Lenders & Loan Options
With so many lenders in the market, finding a loan that offers optimal results can feel overwhelming. This is where mortgage brokers can be a game-changer. Brokers have access to a wide range of lenders and can compare rates, fees, and loan features on your behalf. Instead of spending hours searching and applying to multiple banks, a broker can help you with the process and present you with the most suitable options tailored to your needs – and within your best interests (BID)*.
BID – The “best interests duty” is a legal obligation, particularly for financial advisors and mortgage brokers, to prioritise a client’s needs and interests over their own. This means advisors must provide advice that is objective, unbiased, and tailored to the client’s specific circumstances, including their financial situation, needs, and objectives.
Example: If you’re self-employed in Melbourne, some banks may have stricter income verification requirements. A mortgage broker can help you find lenders that offer flexible options for self-employed borrowers.
4. Property Valuation
Lenders will assess the current market value of your home before approving your refinancing application. This step ensures that your loan-to-value ratio (LVR) falls within their acceptable range – typically < 80%. A property valuer will inspect your home and provide an estimate, which can influence how much you can borrow.
Tip: A well-maintained home can positively impact valuation results. Minor touch-ups like fresh paint, clean landscaping, and fixing small repairs can make a difference.
5. Loan Application & Approval
Once you’ve chosen a lender, it’s time to submit your application. You’ll need to provide financial documents (we’ll cover these in detail in the next section). The lender will assess your income, expenses, credit score, and property value before approving your new loan. If everything checks out, you’ll receive formal approval, and the lender will handle the transition from your old mortgage to the new one.
Once your new loan is settled, you’ll start making repayments under the new terms—hopefully with a more competitive interest rate, better aligned with your financial needs & objectives and improved financial flexibility!
Essential Documents Needed for Refinancing
When refinancing your home loan in Melbourne, having the right documents ready can help streamline the process. Lenders need to assess your financial position before approving a new loan, and missing paperwork can cause unnecessary delays. Below is a detailed checklist of what you’ll need:
1. Personal Identification
Lenders require proof of identity to verify who you are. You’ll typically need at least two forms of identification, such as:
- Driver’s license
- Passport
- Birth certificate
If your current name is different from the name on your documents (e.g., due to marriage or divorce), you may also need to provide a change of name certificate.
2. Proof of Income
Your ability to repay the loan is one of the most important factors lenders consider. To confirm your income, you’ll need:
- Recent payslips (usually from the last 3 months)
- Bank statements showing salary deposits
- Latest tax returns (especially if you have multiple income sources)
- Notice of Assessment from the Australian Taxation Office (ATO)
For self-employed borrowers, lenders usually require additional documentation such as two years of business tax returns, business financials, and sometimes BAS (Business Activity Statements).
3. Employment Details
Even if you provide payslips, some lenders may request additional confirmation of your job status, especially if you’ve recently changed jobs. You may need:
- An employment contract
- A letter from your employer stating your position, salary, and length of employment
If you’re on probation, some lenders may ask you to wait until your probation period is over before refinancing.
4. Loan and Debt Statements
Lenders need a full picture of your financial commitments to assess your borrowing capacity. Be prepared to provide:
- Your current home loan statement (showing at least the last 6 months of repayments)
- Credit card statements (even if you don’t owe anything)
- Personal loan, car loan, or other debt statements
If you’re consolidating debt as part of your refinance, lenders will pay extra attention to your existing liabilities.
5. Asset Documentation
Your assets help demonstrate your financial stability and may impact how much you can borrow. Depending on the lender, you may need to provide:
- Property ownership documents (if you own other real estate)
- Investment account statements (e.g., shares, managed funds, or superannuation)
- Vehicle ownership details (if you own a car outright)
- Superannuation information
- Savings statements
Having all these documents ready before you apply can help speed up the refinancing process and potentially improve your chances of approval.
Tip: Keep digital copies (in a secure place) of these documents so you can quickly provide them if the lender requests additional information. Many lenders now accept online submissions, making the process even more convenient.
Role of a Mortgage Broker in Refinancing
Refinancing a home loan in Melbourne can feel overwhelming, especially when comparing lenders, negotiating rates, and handling paperwork. This is where a mortgage broker becomes invaluable. Instead of doing all the research and legwork yourself, a broker can do this for you, guide you through the process and help you secure a loan product within your best interests.
1. Minimising Your Time & Effort
One of the biggest advantages of using a mortgage broker is that they do all the heavy lifting for you. Rather than spending hours comparing home loan products from different banks and lenders, a broker can:
- Assess your financial situation and goals
- Research suitable refinancing options
- Present the loan choices tailored to your needs
They act as a middleman between you and the lender, streamlining the process so you don’t have to juggle multiple applications or chase up missing documents.
2. Negotiating More Favourable Interest Rates & Loan Terms
Mortgage brokers have industry knowledge and established relationships with lenders, which allows them to negotiate on your behalf for more competitive rates & favourable loan terms that you might not be able to access on your own.
Example: Let’s say you’re looking to refinance your home loan in Melbourne to take advantage of lower interest rates. A broker can compare a vast array of options and potentially find a lender that offers a competitive rate, and even negotiate on your behalf for additional benefits like lower fees or more flexible repayment terms.
3. Helping Ensure Accurate Documentation & Streamlined Approval Process
One of the most common reasons refinancing applications get delayed or denied is incomplete or incorrect documentation. A mortgage broker helps to ensure everything is in order by:
- Guiding you through the required paperwork
- Double-checking that all documents meet lender requirements
- Advising on any additional information needed to strengthen your application
This may mean fewer back-and-forths with the bank and a higher chance of getting approved quickly.
Final Thought: Should You Use a Mortgage Broker?
A mortgage broker can help you navigate the process with support for a more streamlined experience, tailor a mortgage to meet your best interests and potentially help uncover options to reduce the amount of interest you pay over the life of the loan. Plus, in most cases, their services are at no cost for borrowers, as they’re paid by the lender once your loan is settled.
Tip: Even if you’re confident in your ability to compare loans, it’s always worth consulting a broker as they can potentially provide insights you might not have considered.
Final Thoughts: Be Prepared & Seek Guidance
Refinancing a home loan in Melbourne can be a smart financial move, whether you’re looking for a more competitive interest rate, accessing equity, or consolidating debt. However, the key to a streamlined and efficient refinancing experience lies in being well-prepared. Having the necessary documents ready, understanding the process, and setting clear financial goals can help you avoid wasting your time and added frustration.
While refinancing might seem straightforward, the number of loan options and lender requirements can make it overwhelming. This is why seeking guidance—whether from a mortgage broker or a financial advisor—can make all the difference. A broker can potentially help you compare lenders, negotiate more favourable terms, and ensure that your application is strong from the start, improving your chances of approval.
At the end of the day, refinancing isn’t just about securing a lower interest rate—it’s about finding the right loan that aligns with your long-term financial goals. Take the time to prepare, explore your options, and don’t hesitate to ask for help when needed.
Tip: Even if you’re not sure whether refinancing is the right move for you, a consultation with a mortgage broker can provide clarity on whether it’s the right time to switch lenders or if there are other alternatives available.
Frequently Asked Questions
The refinancing process usually takes 3 to 6 weeks, depending on factors like lender processing times, property valuation, and document submission. Here’s a general breakdown of what to expect:
* Initial Research & Application (1-2 weeks): Comparing lenders, gathering documents, and submitting your application.
* Property Valuation & Assessment (1-2 weeks): The lender assesses your home’s value and reviews your financial situation.
•Approval & Settlement (1-2 weeks): Once approved, loan documents are signed, and the new lender settles the loan with your previous lender.
Tip: To speed up the process, ensure all required documents (ID, income proof, loan statements, etc.) are ready before applying.
Yes, refinancing a home loan in Melbourne can come with several fees, but the good news is that some of these costs can be reduced or even waived. Here are the most common fees you might encounter:
* Discharge Fees ($150 – $400): Charged by your current lender to close your existing home loan.
* Application or Establishment Fees ($0 – $1,000): Some lenders charge a setup fee for the new loan, but many offer promotions with no application costs.
* Valuation Fees ($200 – $600): The new lender may require a property valuation, but most banks cover this expense.
•Government Fees ($200 – $500): Includes mortgage registration and discharge fees, which vary by state.
•Solicitor fees ($100-$300): the cost of both the outgoing lender and new lender’s solicitors communicating during the settlement process.
•Break Costs (Varies): If you’re on a fixed-rate loan, breaking the contract early can result in a hefty penalty.
How to Minimise Refinancing Costs
•Look for fee-free refinancing options: Many lenders offer incentives like waived application or valuation fees.
•Negotiate with your lender: If you’re a strong borrower, you may be able to get some fees reduced.
•Compare cashback offers: Some lenders offer cashback bonuses ($2,000 – $4,000) that can offset costs.
•Check if staying put is cheaper: If break costs are high, negotiating a lower rate with your current lender might be the smarter move.
Tip: Always calculate whether the long-term savings from refinancing outweigh the upfront costs. A mortgage broker can help crunch the numbers and find the most advantageous loan option for your situation.
Your credit score plays a big role in refinancing your home loan in Melbourne. Lenders use it to assess your risk level and determine whether you qualify for a new loan. A higher credit score may help increase your chances of approval and more favourable loan terms.
What Credit Score Do You Need to Refinance?
In Australia, credit scores are typically rated as follows:
* Excellent (833 – 1,200): Strong chance of approval with competitive interest rates.
* Very Good (726 – 832): Eligible for competitive loan options.
* Good (622 – 725): May qualify but could miss out on the most favourable loan options.
* Fair (510 – 621): Approval is possible, but interest rates may be higher.
* Poor (0 – 509): Refinancing can be difficult without improving your score.
How to Improve Your Credit Score Before Refinancing
* Pay off outstanding debts – Reducing credit card balances and personal loans can boost your score.
* Make repayments on time – Consistently paying bills and loans on time improves your credit history.
* Limit credit applications – Multiple applications in a short period can lower your score.
* Check your credit report – Request a free report from Equifax, Experian, or Illion to ensure there are no errors affecting your score.
Tip: If your credit score isn’t ideal, don’t panic! Some lenders specialise in refinancing for borrowers with lower scores. A mortgage broker can help you find the right lender for your situation.
Yes, you can refinance a fixed-rate mortgage, but it’s important to understand the potential costs and timing before making a move. When you break a fixed-rate loan before the term expires, lenders typically charge a break cost (also called an exit or early repayment fee).
What Are Break Costs?
Break costs are calculated based on:
* Time left on the fixed term – The longer the remaining term, the higher the fee.
* Loan balance – A larger loan can mean a bigger break cost.
* Interest rate differences – If current interest rates are lower than when you locked in your fixed rate, the lender may charge more to compensate for their loss.
Break costs can range from a few hundred to several thousand dollars, depending on these factors. Always request a quote from your lender before deciding.
When Does It Make Sense to Refinance a Fixed-Rate Loan?
* Interest rates have dropped a lot – If the savings from a lower rate outweigh the break cost, refinancing might be worth it.
* You need to access home equity – If you’re planning renovations or an investment, refinancing could provide extra funds.
* Your financial situation has changed – If you need a more flexible loan (e.g., offset account, lower repayments), refinancing could be a smart move.
How to Minimise Costs When Refinancing a Fixed Loan
* Wait until the fixed term ends – Avoid break fees by refinancing when your fixed term expires.
* Negotiate with your lender – Some lenders may offer a more comeptitive rate or incentives to keep you.
* Compare refinancing offers carefully – A mortgage broker can help you weigh up whether refinancing now is worth the cost.
Tip: If your fixed loan is expiring within 6-12 months, start comparing your refinancing options now so you’re ready to switch when the time comes and avoid paying the high revert variable rate.
When refinancing your home loan in Melbourne, most lenders require you to have at least 20% equity in your property. This means your loan-to-value ratio (LVR) should be 80% or lower. However, refinancing with less than 20% equity is still possible, but it may come with extra costs.
How to Calculate Your Home Equity
Home equity is the current market value of your property minus your outstanding loan balance.
Example:
Your home is valued at $800,000
Your remaining loan balance is $500,000
Your equity = $300,000 (or 37.5% of your property’s value)
Your LVR = 62.5% (which is below the 80% threshold)
With 37.5% equity, refinancing may be more accessible and you could potentially qualify for more competitive rates.
Can You Refinance With Less Than 20% Equity?
Yes, but there are additional costs and restrictions:
Lenders Mortgage Insurance (LMI): If your LVR is above 80%, you’ll likely need to pay LMI, which can cost thousands of dollars.
Stricter lending criteria: Lenders may require a strong credit score and stable income.
Higher interest rates: Some lenders charge a premium for loans with high LVRs.
Ways to Improve Your Equity Before Refinancing
Increase property value – Renovations or market growth can boost equity.
Pay down your mortgage – Making extra repayments reduces your loan balance.
Wait for LVR to drop below 80% – Avoid LMI and get more suitable refinancing options.
Tip: If you have less than 20% equity but want to refinance, a mortgage broker can help find lenders that offer competitive rates with minimal LMI costs.
Take control of your financial future today. Contact our mortgage brokers to find a loan option within your best interest
and start your journey toward financial independence.
Disclaimer:
This page provides general information only and has been prepared without taking into account your objectives, financial situation, or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax, or financial advice and you should always seek professional advice in relation to your individual circumstances.
Licensing statement:
Credit Representative 556602 is authorised under Australian Credit Licence 389328.
Your full financial situation would need to be reviewed prior to acceptance of any offer or product.