Which banks are good for refinancing?

Whether you’re struggling to repay your mortgage and want a lower rate, or you’re hoping to ditch your basic mortgage for some competitive features, refinancing can be a competitive financial decision. So, which lender should you choose for your refinance?  

There is no one best bank for refinancing - if there was, RateCity wouldn’t exist! But you can compare your options and find the best bank for your financial needs and goals. 

This is as easy as figuring out your purpose for refinancing, and choosing a lender that helps you meet this. Let’s explore everything you need to know about Australian banks and lenders to help you choose your best option for refinancing. 

What is your purpose for refinancing?

The reason you are refinancing will influence the bank or lender you choose for your next home loan. If your current lender does not suit your needs anymore, you’ll want to align yourself with the most competitive lender that does. 

 The most common purposes for refinancing include:

• To nab a lower interest rate
• To pay fewer fees
• To gain helpful features, like an offset account
• To access equity in the home
• To take advantage of cashback offers
• To consolidate debt

For example, if your mortgage interest rate is becoming so high it’s putting you into mortgage stress, you may find that a smaller, competitor lender offers lower interest rates on home loans. 

Or if you’re after a competitive cashback offer and packaged home loan with a credit card, a big bank mortgage may be more suitable for you, as larger financial institutions typically can provide multiple credit products. 

Big banks vs small lenders: what you need to consider for your refinance

If you’ve been with the same bank since you were a kid, you’ve likely never considered how big Australian banks compare to smaller lenders. This is important because kicking your home loan goals may be easier or more achievable with a different type of lender.

The Reserve Bank of Australia notes that in Australia, there are two categories of home loan lenders: Authorised Deposit-Taking Institutions (ADIs) and Non-ADIs. 

ADIs include: 

• Banks; including the Big Four Banks (B4Bs), their subsidiaries (e.g. Bankwest or Suncorp), neobanks and some online lenders
• Credit Unions and Building Societies

Non-ADIs include:

• Money market corporations (brokers and dealers)
• Finance companies (some online lenders, some brick-and-mortar companies)

Some smaller lenders can also be ADIs, so keep in mind that just because the mortgage lender’s name is not as recognisable as a big four bank, does not mean that it doesn't carry the same protections and security as a major bank. 

Pros of a big bank for refinancing:

• Security

There is an inherent greater sense of security when choosing to refinance with a major institution in Australia. These larger lenders are viewed as safer, and may have less risk of going under due to their financial backing. If you’re looking to switch to a lender that feels more “stable”, it could be worth considering a big bank.

However, keep in mind that all ADI’s are supported by the Financial Claims Scheme (FCS). Meaning, if an ADI were to go under, the funds in that bank would be protected up to the value of $250,000.  

Also, regardless of the institution you choose, if your bank were to go under it is likely that another lender would purchase your debt and fold you in as a new customer. You would be put on a new home loan and a new interest rate set by that lender, and may want to consider refinancing once again. 

• Convenience

Larger financial institutions may be able to provide more convenience to customers in many ways. Firstly, if you rely on face-to-face customer service, larger institutions may be more likely to have branches nearby to you. Also, if you still utilise cash, bigger banks may have more ATMs in your area, meaning less ATM fees if you chose this lender. 

Finally, larger lenders may be able to offer customers a range of products, from credit cards and savings accounts, alongside home loans. For some Australians, the convenience of accessing all your financial products at once (online, via app, in branch etc.) can be a major draw.  

If keeping all your financial products under the one roof is a priority for you, you may want to look for home loan packages that offer linked credit cards, or even a mortgage with helpful features like an offset account. 

Pros of a smaller lender for your refinance

• Lower rates and costs

On average, RateCity’s database shows that small banks and competitor lenders offer lower interest rates and fewer fees than big banks. This is because these providers have fewer overheads, especially online and app-based lenders. They are able to pass these savings on to their customers to be competitive in the mortgage market. 

If a low interest rate or low fees are a priority in your refinance, it’s worth looking outside of the major institutions and comparing a range of home loan interest rates. 

• More innovation and fintech

One advantage smaller lenders have over the big banks in Australia is the speed at which they may roll out innovative new products and services, especially with fintech. 

Big banks will typically have more red tape to cut through, and more executives needed to sign off on helpful tools, new apps and products. Smaller lenders, however, have far less red tape, and may have a better ability to provide newer technology and interesting finance tools to their customers. For example, many smaller lenders were early adopters of phone pay technology than some of the big four banks. 

How to compare refinancing home loans

Now you have a better idea of which type of bank is best for your refinance, it’s important to carefully compare your home loan options. This can be easily done by utilising comparison tools, such as RateCity’s comparison tables.

Simply enter your mortgage details, such as the loan amount and whether you want a fixed or variable interest rate. You can also filter down options even further by specifically requesting home loans with features, with cashback offers or with a specific lender. 

Comparison tables can be a handy tool as they allow you to compare apples with apples. You will view a range of options side by side, allowing you to easily see how each home loan stacks up in terms of rates, fees and features.  

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