Why Should You Refinance to a Lower Interest Rate?

If your current home loan rate is higher than what new borrowers are getting, refinancing could save you hundreds each month.

Many homeowners in Mount Eliza stay with their original lender for years without realising how much rates have shifted. A rate difference of just 0.5% on a $600,000 loan translates to roughly $3,000 extra in repayments each year. That money could go toward paying down your loan faster, building savings, or improving your offset account balance.

When Does Refinancing Actually Save You Money?

Refinancing saves you money when the rate reduction outweighs the cost of switching lenders. Most lenders charge between $600 and $1,200 in discharge fees, plus application and valuation fees with your new lender. If you're saving $250 per month by moving to a rate that's 0.6% lower, you'll break even within five months.

Consider someone on a $550,000 variable rate loan at 6.8% who refinances to a lender offering 6.1%. Their monthly repayment drops by around $240, so after six months they're ahead even after paying exit and entry costs. Over the remaining loan term, that difference compounds significantly.

The calculation shifts if you're coming off a fixed rate period and moving to a new product. In that case, you avoid break costs entirely, which makes the switch even more straightforward. You can learn more about your options at fixed rate expiry.

What Happens If You're Still in a Fixed Rate Period?

Breaking a fixed rate loan early usually triggers substantial break costs, often running into thousands of dollars. Lenders calculate these costs based on the difference between your fixed rate and the current wholesale rate they're paying, multiplied across the remaining fixed term.

If rates have risen since you locked in, break costs are typically minimal or even zero. If rates have fallen, the lender loses income by letting you out early, and they pass that loss to you. Before making any decision, ask your current lender for a break cost estimate in writing. If the figure is higher than your projected savings over the next 12 months, it's rarely worth proceeding until your fixed term ends.

In our experience, most borrowers who refinance mid-term do so because they're also accessing equity or consolidating debt, not purely for rate. If you're refinancing solely to reduce your rate, waiting a few months until your fixed period expires usually makes more sense financially.

How Much Rate Difference Makes It Worthwhile?

A rate difference of at least 0.4% usually justifies the time and cost involved in refinancing. Anything less than that, and the savings may not cover the effort or the fees, especially if you're planning to move house or pay down the loan quickly.

For a $700,000 loan, a 0.4% reduction lowers monthly repayments by roughly $170. Over five years, that's just over $10,000 in savings. If your loan amount is smaller or you're planning to sell within a couple of years, the benefit shrinks proportionally. Run the numbers based on your actual loan balance and how long you expect to hold the property.

Some borrowers also refinance to switch from variable to fixed, or vice versa. That decision depends less on immediate savings and more on rate outlook and your tolerance for repayment changes. A loan health check can help you weigh up whether locking in a rate suits your circumstances.

What Features Should You Compare Beyond the Rate?

Interest rate is the headline figure, but loan features affect your flexibility and long-term costs. Offset accounts, redraw facilities, and extra repayment options all influence how quickly you pay down your loan and how much control you have over your cashflow.

An offset account reduces the interest you're charged by offsetting your savings balance against your loan. If you have $40,000 sitting in an offset against a $500,000 loan, you only pay interest on $460,000. That saves you around $2,700 per year at a 6.5% rate, which is far more than any savings account would earn after tax.

Redraw lets you pull back extra repayments you've made, but access isn't always instant and some lenders restrict how much you can withdraw. If you're self-employed or running a business, an offset account generally offers more reliable access to your funds. Mount Eliza has a high proportion of business owners and professionals, so this distinction matters locally.

Some lenders also charge monthly account fees, annual package fees, or higher rates if your loan-to-value ratio exceeds 80%. Add these into your comparison, not just the advertised rate.

Does Refinancing Affect Your Credit Score?

Applying to refinance will generate a credit enquiry, which appears on your credit file. A single enquiry has minimal impact, but multiple applications within a short period can lower your score temporarily.

Lenders assess your credit history, current income, and existing debts when you apply. If your financial situation has changed since your original loan, such as a drop in income or new personal debt, it may affect your borrowing capacity or the rate you're offered. That's why it's worth getting your application reviewed by a broker before submitting it, rather than applying to multiple lenders directly and risking several enquiries.

Closing your old loan and opening a new one doesn't hurt your credit score in itself. What matters is how you manage the new loan once it's active. Maintaining regular repayments and keeping your loan balance trending downward will improve your profile over time.

How Long Does the Refinance Process Take?

From application to settlement, refinancing typically takes three to six weeks. Lenders need to verify your income, order a property valuation, and prepare loan documents. If you're self-employed or your income structure is complex, allow extra time for the lender to assess your application.

You'll need recent payslips or tax returns, bank statements covering the past three months, and details of any other debts or ongoing commitments. Your current lender will also provide a payout figure, which includes your remaining loan balance plus any discharge fees. That figure is valid for a set period, usually 30 days, so timing matters if rates are moving.

Once the new loan settles, your new lender pays out your old loan automatically. You don't need to coordinate the payment yourself. Your mortgage switches over on settlement day, and your first repayment with the new lender is usually due about a month later. For more detail on the refinance process, visit refinancing.

Should You Refinance If You're Planning to Invest?

If you're looking to access equity to buy an investment property, refinancing can serve two purposes at once. You secure a lower rate on your current loan and release equity to use as a deposit on your next purchase.

Lenders typically let you borrow up to 80% of your property's current value without paying lenders mortgage insurance. If your Mount Eliza home has increased in value and you've paid down your loan, you may have substantial usable equity. Releasing that equity while also moving to a lower rate makes the refinance application more efficient than applying for a separate top-up later.

Keep your owner-occupied and investment lending separate where possible. This preserves the tax deductibility of your investment loan interest and keeps your loan structure clear if you decide to sell either property down the line. You can explore this further at investment loans.

Call one of our team or book an appointment at a time that works for you. We'll run the numbers on your current loan, compare what's available across our panel of lenders, and show you exactly how much you'd save by refinancing. Whether you're in Mount Eliza or anywhere across Australia, we can help you find a loan that suits your situation without the guesswork.

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