Switching home loans
Work out if you'll save money by switching
to another mortgage
Refinancing your home loan to take advantage of a lower interest
rate might save you money. Before you switch, make sure the
benefits outweigh the costs.
Before you decide to
If you're thinking about switching home loans, you're probably
focused on getting a better interest rate. But there are other
things to consider before switching.
Ask your current lender for a better deal
Tell your current lender you are planning to switch to a cheaper
loan offered by a different lender. To keep your business, your
lender may reduce the interest rate on your current loan.
If you have at least 20% equity in your home, you'll have more
to bargain with. Having a good credit score will also help with
Compare any loan they offer you with the other loans you're
considering. See choosing a home loan for tips on
what to look for.
Negotiate the length of the new loan
Some lenders will only refinance with a new 25 or 30 year loan
term. You could end up with a longer loan term than the years left
to pay off your current mortgage.
The longer you have a loan, the more you'll pay in interest. If
you do decide to switch, negotiate a loan with a similar length to
your current one.
Weigh up the cost of lender's mortgage insurance
If you have less than 20% equity in your home, you might have to
pay lender's mortgage insurance (LMI). This
can increase the cost of switching and outweigh the savings you'll
get from a lower interest rate.
If you decide to switch, ask for a refund of some of the LMI
from your current loan.
Compare the costs of
switching your mortgage
Get at least two different quotes on home loans for your
situation. A mortgage broker or a comparison website
can help you find out what's available.
Comparison websites can be useful, but they are businesses and
may make money through promoted links. They may not cover all your
options. See what to keep in mind when using comparison
Ask the new lender to waive the application fee to get your
Compare these fees and charges:
- Fixed rate loan - if you're on a fixed
rate loan, you may need to pay a break fee.
- Discharge (or termination) fee - a fee
when you close your current loan.
- Application fee - upfront fee when you apply
for a new loan.
- Switching fee - a fee for refinancing
internally (staying with your current lender but switching to a
- Stamp duty - you may be liable for stamp duty when you refinance. Check with
Check if you'll save by
Once you have a short list of potential loans and the fees
involved, use the mortgage switching calculator to work out if
you'll save money by changing home loans. It also shows how long it
will take to recover the cost of switching.
Check out how much you'll save by changing home loans
Case study: Peter and Amy consider refinancing
Peter and Amy's fixed rate home loan period ends in a few months
and their interest rate will increase. They decide to see what
other lenders are offering.
They find two loans with a lower interest rate and the features
Loan A has an application fee of $600 and Loan B has an
application fee of $300. Peter and Amy decide to pick Loan A
because it has the lowest interest rate, which offsets the higher
By switching loans they will save $84,040 ($280 a month) over
the life of their 25-year loan. They will recover the switching
costs in five months.
Switching home loans can save you money, but
always check that the benefits, such as interest rate savings, are
worth the fees you'll be charged for leaving one loan and taking up
Last updated: 28 Aug 2019