How to Refinance Your Home Loan in 2026: Step-by-Step Guide

Refinancing hit a 4-year high in 2025, and with the RBA hiking rates to 3.85% in February 2026, even more borrowers are looking to switch. If you haven't reviewed your home loan in the past 2 years, you could be overpaying by $400+ per month. This guide walks you through the entire refinancing process - from figuring out if it's worth it to settling with your new lender.

How Much Could You Actually Save?

The average variable rate in Australia is currently 6.44%, but competitive lenders are offering rates as low as 5.49%. Here's what that difference means in real dollars:

When Should You Refinance?

Not every refinance makes financial sense. Here are the key signals that it's time to switch:

Step-by-Step: How to Refinance

Step 1: Calculate Your Break-Even Point

Refinancing has costs. Make sure the savings outweigh them before you start.

Break-even example: If refinancing costs $1,500 and saves you $400/month, you break even in just 3.75 months. After that, every dollar saved is pure profit. Most borrowers who refinance in 2026 hit their break-even point within 6 months.

Step 2: Check Your Equity Position

Your Loan-to-Value Ratio (LVR) determines the rates you can access:

• LVR under 60%: Best rates available - "diamond tier" pricing
• LVR under 80%: Great rates, no LMI required
• LVR 80-90%: Decent rates, may need LMI (some lenders waive it)
• LVR over 90%: Limited options, LMI likely required

If your property has increased in value since you bought it, a new valuation could move you into a lower LVR bracket with better rates.

Step 3: Gather Your Documents

Have these ready to speed up the process:

• Last 2 payslips or tax returns (if self-employed)
• Current home loan statement
• Recent bank statements (2-3 months)
• ID documents (driver's licence, passport)
• Details of any other debts (credit cards, personal loans, car loans)

Step 4: Compare Offers (or Use a Broker)

Don't just look at the interest rate. Compare:

• Comparison rate: Includes fees and gives a truer cost picture
• Features: Offset account, redraw, extra repayment flexibility
• Ongoing fees: Annual fees, monthly fees, package fees
• Cashback offers: Some lenders offer $2,000-$4,000 cashback for refinancing

A mortgage broker can compare offers from 40+ lenders at no cost to you - the lender pays the broker's fee.

Step 5: Apply and Settle

Once you've chosen a new lender:

• Submit your application with supporting documents
• The new lender will arrange a property valuation
• Once approved, your broker or solicitor handles the settlement
• Your old loan is paid out and the new loan begins
• Timeline: The whole process typically takes 2-6 weeks

5 Costly Refinancing Mistakes to Avoid

1. Chasing the lowest rate without checking fees: A rock-bottom rate with a $395 annual fee might cost more than a slightly higher rate with no fees
2. Forgetting about your fixed rate break costs: Breaking a fixed loan early can cost $5,000-$20,000+. Always check with your lender first
3. Extending your loan term: Refinancing from 20 years remaining back to 30 years reduces your monthly payment but costs significantly more in total interest
4. Not factoring in LMI: If your LVR is above 80%, you may need to pay Lenders Mortgage Insurance again - this can be thousands
5. Waiting too long: Every month you delay refinancing at a higher rate is money lost. Start the process now

Can You Refinance to Consolidate Debt?

Yes - and it's increasingly popular in 2026. Rolling high-interest debts into your mortgage can dramatically cut your interest costs:

Important: While consolidating debt into your mortgage lowers your monthly payments, you're spreading the debt over a longer term. Make extra repayments on the consolidated amount to avoid paying more in total interest over the life of the loan.