The easiest way to know if your rate is too high

Your current interest rate matters more than most other features of your home loan combined.

The difference between a market rate and one that's drifted above it compounds quietly over years. A borrower paying 0.5% more than they need to on a $600,000 loan is losing roughly $3,000 annually in unnecessary interest. That gap widens if your rate sits a full percentage point above what's available now.

How to compare your rate against current market pricing

Pull out your most recent home loan statement and locate your current interest rate. Then compare that figure to what lenders are currently advertising for the same loan type and similar loan-to-value ratio.

Variable rates for owner-occupiers with principal and interest repayments typically sit within a defined band at any given time. If your rate is more than 0.3% to 0.5% above what similar borrowers are being offered today, you're likely paying more than you should. Investment loans and interest-only structures usually carry a slight premium, so account for that when comparing. The comparison rate shown in advertising includes some fees, but focus first on the actual interest rate when assessing whether your current position is still competitive.

Don't assume your lender has kept you on their most competitive offering. Loyalty rarely translates to preferential pricing in home lending. New customers routinely receive sharper rates than existing borrowers on legacy products.

When refinancing makes financial sense

Refinancing becomes worthwhile when the interest you'll save over the next two to three years exceeds the cost of making the switch.

Consider a borrower with $500,000 remaining on their home loan, currently paying 6.2% on a variable rate. If they can refinance to a lender offering 5.7%, the rate reduction alone cuts roughly $2,500 from their annual interest bill. Discharge fees from the existing lender and application fees with the new one might total $800 to $1,200, meaning the switch pays for itself within six months. Over three years, that borrower saves more than $7,000, assuming rates remain stable.

Break costs apply if you're exiting a fixed rate early. These can be significant if you fixed when rates were lower and are now leaving during a higher rate environment. Lenders calculate break costs based on the difference between your fixed rate and the wholesale rate they can now lend that money at for the remaining fixed period. If you're still within a fixed term, request a break cost estimate before proceeding.

Fixed versus variable when switching lenders

The decision between fixing and staying variable during a refinance depends on where you expect rates to move and how much certainty you need around repayments.

Variable rates move with the Reserve Bank's cash rate decisions and lender funding costs. If you think rates will fall over the next year or two, a variable structure lets you benefit from those cuts without waiting for a fixed term to expire. If you prefer certainty and believe rates will hold or rise, fixing a portion of your loan locks in today's pricing.

Splitting your loan between fixed and variable gives you some rate protection while maintaining offset access and the ability to make extra repayments on the variable portion. In our experience, borrowers who split tend to feel less exposed to rate movements without sacrificing all flexibility. Just make sure the fixed component is large enough to deliver meaningful stability, typically at least 50% of the total loan.

What lenders assess during a rate reduction refinance

Lenders treat a refinance application the same way they assess a new purchase, even if you're only switching to reduce your rate.

Your income, employment stability, existing debts, and credit history are all reassessed. If your financial position has changed since you first borrowed, that affects how much you can access and which lenders will approve you. A borrower who took out a loan three years ago on a higher income may find their borrowing capacity has reduced if they've since moved to part-time work or taken on additional debt.

Lenders also revalue the property. If your home's value has increased, your loan-to-value ratio improves, which can open up access to lower rates reserved for borrowers with more equity. If values have softened, you may find yourself in a higher LVR bracket, which narrows your options. This is more relevant in areas where property values have moved significantly since you purchased.

Serviceability buffers have also tightened in recent years. Lenders now assess your ability to repay at a rate roughly 3% above the actual loan rate. If your income or expenses have shifted, that buffer can make the difference between approval and decline, even if you're comfortably servicing your current loan.

How long a switch to a lower rate takes

Most refinances settle within four to six weeks once you've submitted a complete application.

The timeline depends on how quickly the new lender processes your income verification, orders a valuation, and prepares loan documents. If you're self-employed or your income structure is more detailed, expect the assessment to take a little longer. Delays also occur when documents are missing or when the valuation comes back lower than expected and the lender needs to reassess.

Once approved, your solicitor or conveyancer handles the discharge of your existing loan and settlement with the new lender. You'll continue making repayments to your current lender until settlement occurs, so there's no gap in your obligations. After settlement, your first repayment to the new lender is typically due within a month.

If you're refinancing to take advantage of a rate that's only available for a limited time, start the process as soon as you've confirmed the saving justifies the switch. Rate offers can be withdrawn or revised, and lenders generally honour the rate available at the time of formal approval, not application.

Why some borrowers stay on higher rates despite knowing they could save

Inertia is the single largest reason people remain on uncompetitive rates.

The assumption that switching is complicated or time-consuming keeps borrowers paying more than they need to, sometimes for years. Others worry about being declined or believe their circumstances won't qualify them for a lower rate. In reality, most borrowers who could service their original loan can refinance, provided their financial position hasn't deteriorated and their property value has held.

Another factor is the belief that all lenders are roughly the same. Rates vary more than many people realise, particularly between the major banks and smaller lenders or non-bank institutions. A mortgage broker can compare your current rate across multiple lenders without you needing to approach each one individually, which removes much of the effort from the process.

Some borrowers also overestimate the cost of switching or underestimate the long-term value of even a modest rate reduction. A 0.4% saving might not sound significant, but on a $700,000 loan, that's close to $2,800 a year. Over a decade, that's $28,000 in interest you didn't need to pay.

What happens to your offset and redraw after refinancing

Your offset account balance doesn't automatically transfer when you switch lenders.

Before settlement, you'll need to move any funds sitting in your offset to another account, then redirect them to the new lender's offset once your loan settles. Some borrowers use this transition to consolidate savings or reassess whether they still need an offset structure. If your new loan includes an offset, the setup is usually straightforward, but confirm whether there's a delay between settlement and offset activation.

Redraw balances are treated differently. Any extra repayments you've made above the minimum sit within your current loan and reduce the amount discharged at settlement. That lower discharge figure means you'll need to borrow slightly less from the new lender, which preserves the benefit of those extra payments. You won't lose the value of what you've contributed, but you also won't have immediate access to it in the same way you did through redraw. If access to those funds matters, structure your new loan with redraw or an offset from the start.

If you've been relying on redraw to manage irregular income or large expenses, make sure your new loan offers the same functionality. Not all lenders provide redraw, and some limit how often you can access it.

Using a loan health check to identify whether your rate has drifted

A loan health check compares your current loan structure, rate, and features against what's available now and highlights where you're paying more than necessary.

This process looks at your interest rate relative to market pricing, but also examines whether your loan structure still suits your circumstances. A borrower who set up their loan five years ago with a different income, family situation, or financial goal may find that the loan itself no longer aligns with how they're using it. If you're no longer making extra repayments but paying for an offset account, or if you've built enough equity to access a lower rate tier, those details matter as much as the interest rate itself.

We regularly see borrowers who've been on the same product for three or more years sitting 0.7% to 1% above current market rates. That's not always due to negligence. Rates have moved, lender pricing has shifted, and the product that was competitive when you signed up may no longer be. A health check surfaces that gap before it costs you another year of higher repayments.

Call one of our team or book an appointment at a time that works for you. We'll compare your current rate, walk through the numbers, and show you whether refinancing makes sense for your situation.

Frequently Asked Questions