How to Refinance for a Lower Interest Rate

Why Refinancing to Lower Your Rate Actually Matters

Refinancing to a lower interest rate means you pay less interest over the life of your loan and reduce your monthly repayments. Even a reduction of 0.5% can translate to hundreds of dollars saved each month, depending on your loan size. The key is knowing whether the savings outweigh the costs of switching lenders.

Consider a borrower with a $500,000 loan at 6.2% who refinances to 5.7%. Over the remaining loan term, that half-percentage-point drop reduces monthly repayments by around $150. Across a year, that's $1,800 back in your pocket. But if switching costs $2,000 in discharge fees and application charges, you need to stay in the new loan long enough to recover those upfront expenses.

When Does Switching Lenders Make Sense?

Switching lenders makes sense when the interest you save over 12 to 24 months exceeds the cost of refinancing. Most borrowers who refinance for a rate reduction see a payback period of 12 to 18 months, meaning the savings start stacking up after that point.

You'll usually pay a discharge fee to exit your current loan, often between $150 and $400. Some lenders also charge an application fee on the new loan, though sometimes brokers can negotiate this away. If you're on a fixed rate, break costs can run into thousands, so it's worth checking your current loan terms before making a move. A quick loan health check can clarify whether you're locked in or free to switch without penalty.

In our experience, borrowers who haven't reviewed their rate in two or three years are often paying well above the current market rate. Lenders tend to reward new customers with sharp rates while existing customers drift upward over time. That gap is where the savings sit.

How Much Can You Actually Save?

The amount you save depends on your loan size, the rate gap between your current and new loan, and how long you plan to stay in the property. A borrower with a $400,000 loan who drops their rate from 6.5% to 5.9% will save roughly $120 per month, or $1,440 per year. Over five years, that's more than $7,000 in interest savings.

But if you're planning to sell within a year, the upfront cost of refinancing might not be worth it. The longer you stay in the loan, the more value you extract from the rate reduction. Most people underestimate how much time they'll actually spend in a property, which is why refinancing often pays off even when the initial saving feels modest.

Fixed or Variable After You Refinance?

Once you decide to refinance, you'll need to choose between a fixed rate and a variable rate on your new loan. A fixed rate locks in your repayments for a set period, usually one to five years. A variable rate moves with the market, which means your repayments can go up or down.

Right now, many borrowers are refinancing from a fixed rate that's ending back into a variable loan because variable rates are sitting lower than most new fixed options. But that's not always the case. If you value certainty over flexibility, fixing part or all of your loan can make sense, especially if you're stretching your budget. The refinancing page covers the different structures you can choose when you switch.

As an example, a borrower refinancing a $600,000 loan might split it 50/50 between fixed and variable. That way, half the loan is protected if rates rise, and half can benefit if rates fall. It's not about predicting the market perfectly, it's about matching the loan structure to how much risk you're comfortable carrying.

What Lenders Look at When You Apply

Lenders assess your income, expenses, and credit history just like they did when you first borrowed. Even if you've been paying your current loan on time for years, the new lender will still want to see payslips, bank statements, and proof of employment.

Your borrowing capacity might have changed since you first bought. If your income has increased or your expenses have dropped, you may be able to borrow more or access a wider range of lenders. On the other hand, if your living costs have climbed or your credit score has taken a hit, some lenders might not approve your refinance at the rate you're chasing.

Most lenders will also reassess the property value. If your home has increased in value, your loan-to-value ratio improves, which can unlock lower rates. If the market has softened, you might find yourself with less equity than expected, which can limit your options or trigger lender mortgage insurance if your equity has dropped below 20%.

How Long Does It Take to Refinance?

From application to settlement, most refinances take three to six weeks. The timeline depends on how quickly you can provide documents, how fast the new lender processes your application, and whether a valuation is required.

Some lenders offer fast-track approval for straightforward refinances, especially if you're employed full-time with a strong credit history. Others take longer, particularly if you're self-employed or if the property is unusual in some way. Keeping your paperwork organised and responding to lender requests quickly can shave a week or two off the process.

Once your new loan is approved, the lender will arrange settlement. Your old loan is paid out, and your new loan starts.

Should You Use a Broker or Go Direct?

A mortgage broker can compare rates across dozens of lenders and find options you wouldn't see by going direct to a bank. Brokers also handle the paperwork, chase the lender on your behalf, and negotiate on fees. For most people, using a broker saves time and often secures a lower rate than applying on your own.

Going direct to a lender can work if you already know which bank you want and you're confident negotiating your own terms. But lenders only offer their own products, so you're comparing one rate instead of thirty. If you're refinancing to reduce your rate, the whole point is finding the sharpest offer available, and that usually means casting a wider net.

Brokers don't charge you a fee in most cases because they're paid by the lender once your loan settles. That means you get access to their expertise and lender panel without an upfront cost. If you're weighing up whether to switch, talking to a broker is a low-risk way to see what's possible before committing to anything.

What Happens If You Don't Refinance?

If you stay in your current loan, you keep paying whatever rate your lender is charging. That rate might increase over time, especially if you're on a variable loan and the market moves. Lenders rarely drop your rate without you asking, so inertia can cost you thousands over the years.

Some borrowers worry that refinancing is too much hassle or that they'll lose features they value, like an offset account or a redraw facility. But most modern home loans come with those features as standard, and switching lenders doesn't mean starting from scratch. You can replicate the setup you already have, just at a lower rate.

The risk of not refinancing is that you subsidise new customers who are getting sharper deals. Your loyalty isn't usually rewarded with lower rates. It's rewarded with rate increases you don't notice until you compare what you're paying against what's available.

Call one of our team or book an appointment at a time that works for you. We'll run the numbers, compare your current rate against what's available, and let you know whether refinancing makes sense for your situation.