Refinancing is not only about the interest rate. For many Balwyn borrowers, the stronger reason to refinance a home loan is to gain features that suit how they earn, save and plan to borrow.
If your current loan has no offset account, limited repayment options or a structure that no longer matches your goals, a loan review can show whether a change is worthwhile. The test is whether the new loan's benefits outweigh what it costs to move.
What Does It Mean to Refinance for Flexibility?
Refinancing for flexibility means replacing your loan with one that has features or a structure that suits your situation, even if the rate stays similar. The lender may be new, or you may move to a different loan with your current lender.
ASIC's responsible lending guidance says a switch should produce overall cost savings that outweigh any lost benefits, or produce minimal savings but meet your requirements and objectives more closely. Overall savings include the cost of the switch, fees and any broker fees. That makes flexibility a legitimate reason to refinance, provided the numbers still stack up.
Which Loan Features Add the Most Flexibility?
Offset accounts, redraw facilities and split loans are the main features that change how a loan works day to day. Which one suits you depends on how you handle spare cash.
An offset account is a transaction account linked to your loan. The balance reduces the amount you pay interest on, while the money stays accessible. A redraw facility lets you withdraw extra repayments you have already made. Some lenders place conditions or limits on redraw access, so check the terms before relying on it. A split loan divides your balance into a fixed portion and a variable portion, so you can combine certainty with the option to make extra repayments.
The main trade-off is cost. Loans with an offset account can carry a higher rate or an annual package fee, depending on the lender. Our home loans page outlines the structures we commonly compare.
Fixed Rate Expiry: A Natural Point to Reset Your Loan Structure
When a fixed rate period ends, you can move to a different loan without paying a break fee. A break fee applies only when a fixed rate loan is ended before the fixed term finishes, and it is not charged on variable loans.
Once the term ends, many loans revert to a variable rate. That makes it a sensible time to ask whether you want a different structure, such as an offset account. If you are approaching this point, our fixed rate expiry page explains the options. Starting the review a few months before the end date gives you time to compare loans without pressure.
If you are considering ending a fixed loan early, ask your lender for a written break cost estimate first. That figure can change the whole decision.
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Offset Account Example: $40,000 Against a $600,000 Loan
As an example, consider a Balwyn couple with a $600,000 balance coming off a fixed rate. Their current loan has no offset account, and they keep around $40,000 in a separate savings account for tax bills and household costs.
They refinance to a variable loan with an offset account and move the $40,000 across. At an illustrative rate of 6.75% p.a., interest on $40,000 is about $2,700 a year. With the money in the offset account, they do not pay interest on that portion, yet they can still reach the funds when needed.
The outcome depends on the cost side. If the new loan carries an annual fee or a slightly higher rate, that reduces the saving. They compare the total cost of both loans, including any discharge and application fees, and proceed only because the offset benefit exceeds the extra cost. The figures are illustrative, and your own result will differ depending on your balance, lender and loan features.
Refinancing Costs to Weigh Before You Switch
The main costs of refinancing are a discharge fee on your old loan, an application fee on the new one and, for fixed loans ended early, a break fee. If you have less than 20 per cent equity, lenders mortgage insurance may also apply.
Exit fees on residential loans signed on or after 1 July 2011 are generally prohibited, but break fees and discharge fees are not covered by that ban. If you move to a loan with a longer term to lower repayments, you will pay more interest over time, and you should be told that clearly.
A home loan health check puts your current costs next to the alternatives before you commit. If you plan to borrow more, a lender will also assess your borrowing capacity, and your repayment history on the current loan will usually be considered as part of the refinance process.
Accessing Equity Through a Refinance: What Changes
Refinancing to access equity increases your debt, so the lender will assess the loan as new borrowing rather than a like-for-like switch. Your income, expenses and other commitments will all be reviewed.
If the extra funds are for an investment property, the structure matters for tax. The ATO says interest deductibility depends on what the borrowed money is used for, not on which property secures the loan. Mixing private and investment purposes in one loan can require apportioning interest. Speak with your accountant before you set up the loan. Our investment loans page covers how we approach these structures.
Taking the Next Step
If your loan no longer suits how you manage money, call one of our team or book an appointment at a time that works for you through our book appointment page. We will review your current loan, compare alternatives and show you the costs and trade-offs. You can also read more about our local mortgage broker in Balwyn service.
Frequently Asked Questions
Can I refinance a home loan for features rather than a lower rate?
Yes. ASIC guidance allows for a switch that produces minimal savings but meets your requirements and objectives more closely. The overall cost of switching, including fees, still needs to be weighed.
Do I pay a break fee when my fixed rate ends?
A break fee applies only if you end a fixed rate loan before the fixed term finishes. It is not charged on variable rate loans.
What is the difference between an offset account and redraw?
An offset account is a linked transaction account whose balance reduces the interest charged on your loan. Redraw lets you withdraw extra repayments you have already made, and lenders may apply conditions to access.
Will refinancing to access equity affect my tax?
It can. The ATO looks at what the borrowed money is used for when deciding interest deductibility. Speak with your accountant before you set up the loan.
