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Home loan guide / Refinancing

The Ultimate Guide to Different Types of Refinance Loans

5 min read

Caitlyn Smith

Refinancing your home loan can be a smart move if you want to save money, but it isn’t a one-size-fits-all process. There are different ways to refinance depending on what you want to achieve.

Refinancing your home loan can be a smart move if you want to save money, but it isn’t a one-size-fits-all process. There are different ways (and reasons) to refinance depending on what you’re wanting to achieve.

It can help you get a better interest rate, lower fees, or more flexible features that better suit your financial situation. At Tic:Toc, we offer a range of refinance loans to suit you. In this guide, we'll take you through the different types of refinance loans to help you make an informed decision.

Rate-and-term refinance

A rate-and-term refinance loan is one of the most common types of refinancing. It involves replacing your existing loan with a new loan that changes your interest rate and/or term while keeping your loan amount the same.

You can lower your repayment amount by refinancing to a lower interest rate, and or by lengthening your loan term (generally 30 years is the maximum). Be mindful that not all lenders will allow you to lengthen your loan term, and your application will be assessed to ensure the loan terms are suitable based on your personal circumstances. This assessment is part of being a responsible lender and ensuring you’re not worse off in the short and long term.

Alternatively, you can increase your repayment amount. Generally, in a refinance situation, you’d be maximising your repayment amount because you’ve applied to shorten your loan term and pay more off each month. You’ll end up paying less interest over the life of your loan too, because of compound interest.

Cash-out refinance

A cash-out refinance loan is another type of refinance loan that allows you to access the equity in your home. You can use the equity to pay off high-interest debt, fund home renovations or invest in other properties. With Tic:Toc's cash-out refinance loans, you could borrow up to 80% of the equity in your home, which can be used for consolidating debt or funding your home improvements.

Cash-in refinance

A cash-in refinance is the opposite of a cash-out refinance, where you lower your overall loan amount by contributing a lump sum amount. To do this you take out a new loan that is less than your old loan amount and pay the difference (the lump sum amount) so the old loan can be closed. Cash-in refinances reduce your loan’s principal amount, and can help you lower your new loan amount to get below a certain LVR (Loan to Value Ratio), resulting in reduced repayments.

Fixing your interest rate (and rolling-off)

When you’re looking to switch the interest rate type on your home loan, it’s what the industry calls a ‘loan restructure’. It doesn’t require the same level of assessment as applying for a home loan (including a refinance), but your lender will assess for suitability and affordability.

If you’re looking for stability and predictability, fixing your loan for a period of time (between 1-5 years, typically) will allow you certainty around your repayment amount. Note, that breaking a fixed loan period comes with particularly high break costs, regardless of your lender, so this is a good time to make a considered decision.

If you’ve been on a fixed-term loan and reverting back to a variable, you’ll generally be notified by your lender of your roll-to rate and when you can expect this to occur. This generally isn’t considered a ‘loan restructure’ but it’s a good time nevertheless to review the status of your home loan and see what’s available in the market.

Split loans

A split loan is a type of refinance loan that allows you to split your mortgage into multiple parts (typically 2), with different interest rates (variable or fixed) and terms. This allows you to take advantage of both fixed and variable interest rates and enjoy the benefits of both.

Consolidation refinance

A consolidation refinance enables you to combine your debt and close separate lines of credit (credit cards, personal loans and car loans), turning them into one debt and one repayment. When you refinance your home loan, your new loan amount will include the total amount of the debt you want to consolidate as well as your current home loan balance. Your lender will pay off each line of credit you wish to consolidate, and will add this amount to the total of your new loan, along with the amount left on your old home loan.

It’s important to get independent financial advice and ensure that you’re going to save money on repayments (and fees) overall.

You can apply for a consolidation refinance through Tic:Toc’s in-house broker, Tic:Toc + Choice.

Always come out on top

There are many different ways to refinance your home loan, so it’s important to consider your options carefully and make sure that refinancing means you’re left in a better position. Tic:Toc offers a range of refinance loans to help you save money on your home loan and achieve your financial goals. So why wait?

Find out how much you could save by switching to Tic:Toc by using our refinance calculator or chat with our friendly Home Loan Specialists today.

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