Refinance to a Lower Rate: Brighton Homeowner Guide

If your home loan rate has sat untouched for a while, a refinance could lower your repayments. It only pays off when the savings are bigger than the cost of switching. This guide helps Brighton homeowners work out which side of that line they are on.

How Do You Know If a Lower Rate Refinance Is Worth It?

A refinance is worth it when the savings in repayments clearly outweigh the costs of leaving your current loan. The gap between your rate and what lenders now offer matters, but so do your loan balance, your remaining term and any fees.

A bigger loan balance means a small rate difference adds up to more dollars each month. A smaller balance with only a tiny rate gap may not cover the cost of switching. Your rate is also only part of the story. A comparison rate includes some fees and charges, so it gives a fuller picture than the headline rate alone.

Lenders often keep their sharpest pricing for new customers. If you have not asked your lender to review your rate, that is a good first step. Some will reduce it when asked, and some will not.

A Worked Example: What a Half Percent Reduction Looks Like

On an illustrative $700,000 loan with 30 years remaining, a 0.50 percentage point cut in your rate lowers repayments by about $230 a month. The figures below use 6.75% p.a. as an illustrative example rate and 6.25% as a hypothetical new rate. They are not current offers.

Consider a Brighton homeowner who has been on the same variable loan for several years. Their repayment at 6.75% p.a. on $700,000 over 30 years is roughly $4,540 a month. They speak with a broker, who finds a lender offering a rate 0.50 points lower. At 6.25% p.a. over the same term, the repayment drops to roughly $4,310 a month.

Suppose switching costs about $1,000 in discharge and settlement fees. The monthly saving of around $230 covers that in about four to five months. After that, the saving is theirs to keep or put against the loan. The trade-off is that a new lender will reassess their finances and may reset the loan term, which can mean paying more interest overall if they stretch it out. They can avoid that by asking to keep repayments at the old level, or by keeping the original end date.

You can test your own numbers with our mortgage repayment calculator.

What Does It Cost to Refinance a Home Loan?

The cost of refinancing depends on your current lender, your loan type and what the new lender charges. Common costs include discharge fees, application or settlement fees, and break costs if you are leaving a fixed rate early.

Your loan contract lists the fees for leaving. Check it for a discharge fee before you commit. If you are on a variable rate, the cost of leaving is often modest. A fixed rate is different, because ending it early can trigger break costs. Those costs depend on how rates have moved since you fixed and how long is left on your term, so they can be large or close to nothing. Ask your lender for a written figure before you decide.

Some lenders offer incentives when you switch. Read the conditions on any incentive, because they can come with minimum loan sizes or a requirement to stay for a set period.

Fixed Rate Expiring? Check Before You Roll Over

When a fixed rate ends, most loans move to the lender's standard variable rate, which may be higher than what you could get elsewhere. The end of a fixed term is often the cheapest time to switch, because break costs no longer apply.

If your fixed term is ending soon, start looking a few weeks ahead. That gives you time to compare options and line up an approval before the rate changes. Our fixed rate expiry help page explains the options in more detail.

Switching Lenders Versus Asking Your Current Lender

Staying with your current lender and asking for a lower rate takes less effort, while switching lenders can open up more choice. Neither is always the right answer.

A call to your current lender costs nothing and can sometimes lead to a rate cut. The downside is that you are only seeing one lender's pricing. A broker can compare many lenders at once, which helps you judge whether the offer you got is competitive. A mortgage broker in Brighton can run that comparison and explain the trade-offs of each option, including features such as offset accounts and redraw, which may carry a higher rate or an annual fee.

What a Lender Looks at When You Apply

A new lender will assess your income, your spending, your debts and your property before approving a refinance. The process is similar to your original application, so it helps to be ready.

If your circumstances have changed since you took out the loan, such as a new car loan, credit card limits or a change in work, tell your broker early. Lenders look at credit card limits as well as balances, so closing cards you do not use can help. Your remaining loan balance compared with your property value also affects which rates you can access. A lender will usually arrange its own valuation of your home as part of the process.

If you want a quick read on where your current loan stands, a loan health check is a good place to start. You can also read more about the process on our refinancing page.

When Refinancing for a Lower Rate May Not Suit You

Refinancing may not suit you if the savings are small, your fixed term has a long way to run, or you plan to sell soon. In those cases the costs can outweigh the benefit.

If your finances have tightened since you took out the loan, a new lender may also assess you more strictly than before. It is worth checking this before you apply, as an unsuccessful application can leave a mark on your credit file.

For questions about how interest on your loan affects your tax position, speak with your accountant.

Call one of our team or book an appointment at a time that works for you. We will compare your current loan against a wide range of lenders and tell you honestly whether switching is worth it.

Frequently Asked Questions