Exploring different types of mortgage refinancing: Find the best option for you

Refinancing your home loan can do more than help you secure a lower interest rate – it can provide financial flexibility, improve your loan terms, and even help you consolidate debt. You might choose to refinancing to a larger mortgage, a smaller one, or roll other debts into your home loan facility.

Read on to discover which type of refinancing best suits your situation and how to get started.

Refinancing to a better mortgage

The first and perhaps most recognisable type of home loan refinancing is that which is intended to improve your mortgage deal.

Sometimes referred to as no cash-out refinancing or rate-and-term refinancing, it can see you securing a lower rate or more features that better suit your needs. You could choose to fix your home loan rate, split it – keeping part at a fixed rate and the rest at a variable rate – or break your fixed term and switch to a variable interest rate.

See also: Costs of refinancing a home loan

How does refinancing work?

When you refinance your home loan, your new lender will give the money it's lending you to your old lender, effectively paying your old lender the funds you owe it. You will then make repayments towards your new home loan and your old home loan will be discharged as if you'd repaid it.

Is refinancing right for you?

If you have a home loan, it's important to keep abreast of your mortgage and the broader market to make sure you're always getting a good deal. Things can change quickly, and what might have once been a competitive mortgage product can lag behind, becoming less attractive over time.

If you feel your home loan no longer stands up against others available, your circumstances change, or you find yourself needing features you didn't previously, it's probably worth your while to consider refinancing. After all, mortgage repayments generally take a large chunk of a homeowner's budget, and better aligning your home loan with your needs could save you tens of thousands of dollars.

Find market-leading refinancing home loans

Is your home loan still giving you the best deal? Explore some of the market's lowest-rate home loans in the table below and see how they compare.

Important Information and Comparison Rate Warning

What is cash-out refinancing?

Have you built up substantial equity in your home or investment property? You might consider cash-out refinancing, also known as refinancing to access equity.

Equity is the difference between your property's market value and your remaining mortgage balance - essentially, the portion of your home you own outright. Over time, equity typically increases as you pay down your home loan and property values rise.

How does cash-out refinancing work?

With cash-out refinancing, you increase your outstanding home loan balance to access a portion of your equity as cash. The additional amount borrowed is added to your loan and you'll be charged interest on it.

Why consider cash-out mortgage refinancing?

Homeowners may choose cash-out refinancing for various reasons, including:

• Funding home renovations

• Purchasing an investment property

• Covering large expenses such as education or travel

What is cash-in refinancing?

Cash-in refinancing involves making a lump sum payment to reduce your outstanding home loan balance.

If you make a lump sum payment without refinancing, your home loan repayments will typically remain the same, but you'll benefit from paying less interest over time. However, by putting down a large deposit as part of the refinancing process, you can secure lower ongoing home loan repayments.

How does cash-in refinancing work?

Cash-in refinancing follows the standard refinancing process, with the key difference being the borrower contributes a lump sum upfront. You and your new lender will likely work together to repay your old lender the funds you owe. You will then owe your new lender the value of your old loan, less the value of your lump sum contribution. Thus, assuming your loan term remains the same or is extended, you'll realise lower regular repayments.

Why consider cash-in mortgage refinancing?

Cash-in refinancing may be a good option if you have extra cash available and want to reduce your mortgage costs. It can also be beneficial if you've recently received access to a significant sum of money, such as from:

• Selling another asset

• A severance package or inheritance

• Accessing superannuation upon reaching preservation age or retiring

By applying a lump sum to your mortgage through refinancing, you can lower your debt and potentially free up cash flow. Though, you'll loose easy access to your extra funds.

What is debt consolidation refinancing?

If you have multiple loans in addition to your mortgage, you might consider debt consolidation refinancing. This process involves 'rolling' your smaller debts – such as personal loans, credit cards, or buy now, pay later (BNPL) balances – into your mortgage.

By consolidating all debts into a single home loan, borrowers can potentially simplify their repayments and reduce their overall interest costs. Home loans generally have lower interest rates than personal loans and credit cards and often demand fewer fees than BNPL debts.

However, it's important to consider the long-term financial impact of consolidating debt into a mortgage. Since home loans typically have longer terms – potentially up to 40 years – doing so may result in paying more interest over time than if the debts were repaid separately.

How does debt consolidation refinancing work?

Refinancing to consolidate debt works similarly to cash-out refinancing, however the liquefied home equity is used to repay other debts. Your lender might repay your debts directly or it may provide you with the cash to repay them yourself.

You might also choose to 'top-up' your home loan to consolidate your debts rather than refinancing.

Why consider refinancing your mortgage to consolidate debts

Refinancing your mortgage to consolidate debt might be beneficial if you:

• Struggle to manage multiple repayments across various loans

• Want to take advantage of lower home loan interest rates

• Aim to reduce fees associated with multiple debts

However, it's important to weigh the potential downside of extending short-term debts into a longer home loan term, which could result in higher overall interest costs.

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