Refinancing

Refinancing means replacing an existing loan with a new one, either with the same lender or a different lender. People refinance to change the rate or structure, release equity, consolidate debts, or repay short-term or private finance with a longer-term loan once their circumstances or the property have changed.

An example

A borrower uses a short-term private loan while completing a renovation. Once the work is finished and the property is revalued, they apply to a bank for a standard loan, and the new loan repays the private lender in full at settlement.

Why it matters

Refinancing has its own costs, including discharge, establishment, valuation and possibly break costs, and it depends on a new lender agreeing to lend. Relying on a refinance as an exit strategy is only as safe as your chance of meeting that lender's criteria.

Points to check

Ask your current lender for a payout figure that lists every discharge, exit and break cost. Ask the new lender for its full fees, valuation requirements and expected timeframe, and confirm in writing what it needs from you. If you are refinancing out of short-term or private debt, start early, because a missed expiry date can trigger default interest. Compare the total cost, not just the interest rate.

Try it: Repayment calculator

Related terms

• Exit strategy
• Break costs
• Exit fee
• Establishment fee