Switching to a lower rate can reduce your monthly repayments and the total interest you pay over the life of your loan.
If you haven't reviewed your home loan in the last couple of years, there's a reasonable chance you're paying more than you need to. Lenders often reserve their sharpest pricing for new customers, while existing borrowers sit on rates that haven't moved in line with what's currently on offer. A home loan health check can show you where you sit compared to what's available now, and whether it makes sense to move.
When Does Refinancing to a Lower Rate Make Sense?
Refinancing makes sense when the interest you save over the next few years outweighs the costs involved in switching.
Consider a scenario where you're sitting on a variable rate of 6.2% with a loan amount of $450,000 and 25 years remaining. If you can move to a rate of 5.7%, your monthly repayment drops by around $160. Over 12 months, that's close to $1,900 in your pocket. But refinancing isn't without cost. Application fees, valuation fees, and discharge fees from your current lender can add up to $1,500 or more depending on the lender and your circumstances. If you're staying in the property and keeping the loan for several years, the ongoing savings will usually justify the upfront spend. If you're planning to sell or pay the loan down quickly, the numbers might not stack up the same way.
In our experience, borrowers in Truganina who purchased in the last few years and locked in a fixed rate are now coming off those terms and seeing their repayments jump. That's often the trigger to start comparing what else is out there.
What Costs Should You Expect When You Refinance?
You'll typically pay a discharge fee to your current lender, application or settlement fees to the new lender, and sometimes a valuation fee.
Most lenders charge between $300 and $500 to discharge your existing mortgage. Your new lender may charge an application fee, though some waive this as part of a refinance offer. If the lender orders a property valuation, expect another $200 to $300 unless it's included. Some lenders also charge a settlement fee, which can sit around $150 to $250. All up, you're looking at somewhere between $800 and $1,500 in direct costs, though this varies depending on who you're moving to and what they're willing to cover. It's worth asking what fees apply before you commit, because they can differ significantly between lenders.
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How Much Can You Actually Save on Interest?
The amount you save depends on your loan amount, how much your rate drops, and how long you keep the loan.
Take a borrower with a $500,000 loan and 22 years left to run. They're currently on a variable interest rate of 6.4%. If they move to a lender offering 5.8%, the monthly saving is roughly $190. Over five years, that's around $11,400 in reduced interest, assuming the rate gap stays consistent. Of course, rates don't stand still. If your new lender increases their rate six months after you switch, the gap narrows and so does your saving. But even if both lenders move in step, you're still ahead if you started from a lower base.
This is also where features start to matter. If your new loan includes a refinance offset account, any money sitting in that account reduces the balance on which interest is calculated. For someone with $20,000 in everyday savings, that could trim another $1,100 a year in interest at a 5.8% rate. The combination of a lower interest rate and useful features can make a material difference to your cashflow and what you pay over time.
What Happens If You're Coming Off a Fixed Rate?
When your fixed rate period ends, you'll automatically move to your lender's standard variable rate unless you choose to refinance or negotiate a new fixed term.
Most lenders don't contact you with their most competitive offer when your fixed rate expires. You'll roll onto whatever their revert rate is, which is often higher than what they're advertising to new customers. If your fixed rate was 2.5% and the revert rate is 6.5%, your repayments can double depending on how much you owe and how long your original loan term was. That's not an exaggeration. We regularly see this in Truganina, where buyers locked in record-low fixed rates a few years back and are now facing a sharp adjustment.
If you're within three to six months of your fixed rate expiry, now is the time to compare what's available. You can start the refinance application early and time settlement to coincide with the end of your fixed term, so you avoid break costs and move straight to a lower rate. Some lenders will even let you lock in a new rate before settlement, which gives you certainty if you're concerned about further rises.
Can You Access Equity and Lower Your Rate at the Same Time?
You can release equity when you refinance, as long as your property has increased in value and you meet the lender's serviceability requirements.
Say you bought in Truganina a few years ago and your property has appreciated. You owe $380,000, and a recent valuation puts your home at $620,000. That gives you around $240,000 in equity. If you want to access some of that equity to fund an investment property deposit, renovations, or debt consolidation, you can do that as part of the refinance process. Most lenders will lend up to 80% of the property's value without requiring lenders mortgage insurance, so in this case you could potentially borrow up to $496,000. After paying out your existing $380,000 loan, that leaves $116,000 available to drawdown, minus any costs.
The advantage of doing this while refinancing to a lower rate is that you're improving your interest cost on the original loan while also accessing funds at a lower rate than most other forms of credit. Just keep in mind that borrowing more increases your loan amount and your repayments, so the monthly saving from the rate drop might be partly or fully offset depending on how much equity you release.
Should You Switch to Fixed or Stay Variable?
That depends on whether you value certainty over flexibility, and what you think will happen with rates over the next few years.
A fixed interest rate locks in your repayment for a set period, usually between one and five years. If rates rise during that time, you're protected. If they fall, you're stuck paying the higher rate unless you're willing to pay break costs to exit early. A variable interest rate moves with the market, which means your repayment can go up or down. It also tends to come with more flexibility, such as the ability to make extra repayments, redraw funds, or use an offset account without restriction.
Some borrowers split their loan, fixing part for stability and leaving part variable for flexibility. It's not the right fit for everyone, but it can smooth out some of the uncertainty without locking you in completely. If you're refinancing and unsure which structure suits your situation, a broker can walk through the options based on your income, spending patterns, and plans for the property.
How Long Does the Refinance Process Take?
From application to settlement, most refinances take between four and six weeks, though it can be shorter if your situation is straightforward.
The timeline depends on how quickly you can provide documents, how long the lender takes to assess your application, and whether a property valuation is required. If the valuation comes back lower than expected, that can delay things while you work out whether to proceed or adjust the loan amount. Once the loan is formally approved, settlement is usually scheduled within two weeks. Your new lender pays out your old loan, and you start making repayments under the new terms.
If you're in Truganina and your property is relatively new or part of a larger estate near Skeleton Waterholes Creek or the Westside Shopping Centre precinct, valuations tend to move quickly because there's plenty of comparable sales data. Older or more unique properties can take a bit longer.
What Features Should You Look for Beyond the Rate?
An offset account, redraw facility, and the ability to make extra repayments without penalty are the features that tend to deliver the most value over time.
A refinance offset account works like a transaction account linked to your loan. Every dollar in the offset reduces the balance on which interest is calculated, which can save you thousands over the life of the loan without locking that money away. A redraw facility lets you access any extra repayments you've made, which is useful if you need funds in an emergency but still want to pay down your loan faster. And if your loan allows unlimited extra repayments without penalty, you can reduce your interest and shorten your loan term whenever you have spare cash.
Some loans also come with features like rate locks, fee waivers, or the ability to split your loan into multiple accounts. Not all of these will matter to you, but it's worth knowing what's included so you're not paying for features you won't use or missing out on ones that would actually help.
Is It Worth Refinancing If You've Only Got a Small Loan Left?
It can be, but the smaller your loan amount and the shorter your remaining term, the less you'll save in total.
If you owe $150,000 with eight years to go and you can drop your rate by 0.5%, your monthly saving might only be $50. Over the remaining term, that's around $4,800 in total interest saved. If your refinance costs are $1,200, you're still ahead by $3,600, but you've also spent time and effort on the process. Some people find that worthwhile, others would rather leave it and focus on paying the loan down faster.
The decision often comes down to what else you're gaining. If the new loan gives you access to an offset account or lets you consolidate other debts at a lower rate, the total benefit might be larger than the interest saving alone. A loan review can help you weigh up whether it makes sense in your specific situation.
Refinancing isn't just about chasing the lowest rate. It's about making sure your loan still fits your circumstances, your cashflow, and your plans for the next few years. If you're in Truganina and you haven't looked at your home loan in a while, it's worth seeing what's changed. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
How much does it cost to refinance a home loan?
Most borrowers pay between $800 and $1,500 in refinancing costs, including discharge fees, application fees, and valuation fees. Some lenders waive certain fees as part of a refinance offer, so it's worth comparing what each lender charges before you commit.
How much can I save by refinancing to a lower interest rate?
The amount you save depends on your loan amount, the size of the rate drop, and how long you keep the loan. A 0.5% rate reduction on a $450,000 loan can save around $1,900 per year in interest, though actual savings vary based on your circumstances.
When is the right time to refinance my home loan?
Refinancing makes sense when the interest you'll save over the next few years outweighs the upfront costs. It's also worth considering if your fixed rate is about to expire, if you want to access equity, or if your current loan no longer suits your needs.
Can I access equity when I refinance?
Yes, you can release equity as part of the refinance process if your property has increased in value and you meet the lender's serviceability requirements. This is often used to fund investment property deposits, renovations, or debt consolidation.
Should I fix or stay variable when I refinance?
It depends on whether you value repayment certainty or flexibility. A fixed rate protects you if rates rise, while a variable rate gives you more freedom to make extra repayments and access features like offset accounts. Some borrowers split their loan to get both.
