Lenders often save their sharpest rates for new customers, so if you’ve had the same home loan for a few years, there’s a fair chance you’re paying more than you need to. Refinancing isn’t always the answer, though. Use this checklist to work out whether a review could save you money, and what to weigh up before you switch.

Signs it’s time for a review

• You haven’t checked your rate in a year or two. Compare it with what lenders are offering new borrowers with a similar loan.
• Your fixed rate is ending. When it expires, your loan usually rolls to the lender’s standard variable rate, which may be higher than what’s available elsewhere.
• Your property has gone up in value. More equity can mean a better rate, or no longer needing lenders mortgage insurance.
• You want to use your equity. For renovations, an investment property or other goals.
• You’re juggling other debts. Car loans, credit cards or a tax debt could be costing you more than your home loan.
• Your loan no longer fits your life. You might want an offset account, more flexibility or a change from interest-only to principal and interest.

Step 1: Ask your current lender first

Moneysmart suggests asking your lender for a better deal before you switch. Let them know you’re looking at other options. Many lenders will cut your rate to keep you, especially if you have at least 20% equity and a good repayment history. Get any offer in writing so you can compare it fairly.

Step 2: Add up the costs of switching

• Break costs if you’re leaving a fixed rate early. These can be significant, so ask your lender for an estimate.
• Discharge fees from your current lender, plus government fees to register and remove the mortgage
• Application, valuation or settlement fees on the new loan, though some lenders waive these
• Lenders mortgage insurance (LMI) if you’ll have less than 20% equity. LMI can wipe out the savings from a lower rate.

Moneysmart’s mortgage switching calculator can show how long it would take to win back these costs.

Step 3: Compare more than the rate

• The comparison rate, which includes most fees and charges, not just the advertised rate
• Ongoing fees, such as annual package fees
• Features you’ll actually use, like an offset account, redraw or extra repayments
• Cashback offers. Some lenders offer them, but a one-off payment shouldn’t outweigh a higher rate over the long term.

Step 4: Watch your loan term

If you have 22 years left on your loan and refinance to a new 30-year loan, your repayments may drop, but you could pay a lot more interest overall. Moneysmart recommends keeping your new loan term close to the time left on your current one, or keep paying your old repayment amount if you can.

Step 5: Check you’ll be approved

Refinancing means a full new application. The new lender will check your income, expenses and credit file, and test whether you could still afford repayments if rates rose. If your income has dropped, you’ve become self-employed or your credit history has changed, it’s worth getting advice before applying, as every application is recorded on your credit file.

A typical scenario

Take a couple whose two-year fixed rate is ending next month. Their loan is about to roll onto the lender’s standard variable rate. Their home has gone up in value since they bought, so they now have more than 20% equity. They ask their lender for a better rate and get a modest discount. A broker compares that offer with other lenders, adds up the discharge and government fees, and keeps the new loan term the same as the years they have left. They can then choose the option that saves the most over the next few years.
This is an illustrative example only. Every situation, lender and outcome is different.

Frequently asked questions

How often should I review my home loan?

At least once a year, and whenever your fixed rate is ending or your circumstances change.

How long does refinancing take?

Often a few weeks from application to settlement, depending on the lender, the valuation and how quickly your current lender releases the mortgage.

Can I refinance if I’m self-employed?

Yes. Lenders will want to see your business income, and some offer low-doc options. See Self-employed home loans with only 1 year of tax returns.

Will refinancing hurt my credit score?

A single application usually has a small effect. Several applications in a short time can look worse to lenders, which is why it pays to target the right lender first.

Get a free home loan review

We’ll compare your current loan with what’s available across our lender panel, include every cost of switching, and tell you plainly if staying put is the better choice.

General information only. This article doesn’t consider your objectives, financial situation or needs, and isn’t credit advice. Home loans are arranged by Stratium Finance Group Pty Ltd (ABN 65 696 556 804), Corporate Credit Representative 578600 of Yellow Brick Road Aggregation Pty Ltd, ACL 390261. All loans are subject to lender approval, terms, conditions, fees and charges.