Yes. In Australia, you can refinance your home loan with another lender if you meet that lender’s lending criteria. The lower advertised rate is only one part of the decision: exit charges, application and ongoing fees, possible lender’s mortgage insurance (LMI), the remaining term and lost features can determine whether switching actually saves money.
First ask your current lender for a better rate. Then compare its retention offer with competing loans on the same balance, repayment schedule and remaining term. Estimate the time needed for interest and fee savings to recover every switching cost before you apply.
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Is switching to a lower-rate lender allowed?
Yes. Switching lenders is usually done by refinancing: the new lender approves a loan, uses it to repay the old mortgage, and takes the new mortgage over the property. Approval is not automatic. The new lender will reassess income, expenses, debts, credit history, property value, loan-to-value ratio and its own serviceability rules.
Rates vary substantially across the Australian market. ASIC MoneySmart says there can be an interest-rate difference of more than 2 percentage points between variable home loans, but that is a market observation, not a promise that you qualify for a particular reduction. Your actual rate depends on the product, borrower and property.
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Before doing the paperwork, call the existing lender’s retention or discharge team. A rate reduction or fee waiver may deliver most of the benefit without a valuation, new application or mortgage discharge. Compare that offer against alternatives on equivalent terms rather than against an online headline rate.
What can switching cost?
There is no single Australian switching fee. Ask the current lender for a written payout figure and ask the prospective lender for a complete fee schedule. Possible costs include:
| Cost category | When it may apply | What to confirm |
|---|---|---|
| Fixed-rate break fee | You repay or refinance during a fixed-rate period. | Request the lender’s calculation for your proposed settlement date. MoneySmart warns the amount can be very high and may increase when market rates have fallen since you fixed the loan: fixed versus variable guidance. |
| Discharge or termination fee | The old mortgage is paid out and removed from the title. | Ask for the exact fee, any administration charges and the time needed to process discharge. |
| New application or establishment fee | The replacement lender sets up the new loan. | Confirm whether the fee is payable upfront, added to the loan or waived under a promotion, and whether other valuation or settlement charges apply. |
| Internal switching fee | You change products while staying with the same lender. | Even without changing lenders, ask whether a product-switch, valuation or documentation fee applies. |
| Stamp duty and government charges | State and transaction circumstances determine whether a duty or registration charge is payable. | Ask both lenders and your conveyancer which charges apply in your state; do not assume a refinance is duty-free. |
| Lender’s mortgage insurance | The new loan exceeds 80% of the property value, or the lender otherwise requires LMI. | Obtain the premium before accepting the offer and ask whether any existing LMI can be partly refunded. |
| Ongoing and feature fees | The new product has annual package, account, offset or other service fees. | Include recurring fees in the break-even calculation and check restrictions on redraw and extra repayments. |
These are possible categories, not a universal price list. The amount that matters is the quote for your loan, property, state and settlement date.
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Check equity and the risk of LMI
Calculate your usable equity as the property’s current value minus the loan balance, then express the balance as a percentage of that value. If your equity is below 20%, MoneySmart says you might have to pay LMI when switching. A refinance can therefore create a large one-off cost even when the new interest rate is lower.
Ask the current lender whether any part of the original LMI premium is refundable and ask the new lender for a written LMI quote. Refund rules depend on the policy, lender and time since the original loan; do not treat a possible refund as certain savings. A fresh valuation can also change the equity calculation, so use a realistic value rather than an optimistic listing price.
Compare loans on the same basis
Use the Key Fact Sheet and personalised offer, not just an advertised rate. MoneySmart’s comparison guidance recommends checking the following figures and conditions: choosing a home loan.
| Comparison item | Why it matters | Questions to ask |
|---|---|---|
| Interest rate and personalised comparison rate | The comparison rate combines the advertised rate with certain fees and is designed to show a broader cost, although it does not capture every circumstance or feature. | Is the rate fixed, variable or split? What assumptions produce the comparison rate? |
| Total amount repayable | A lower monthly payment can still produce more lifetime interest if the term is extended. | What is the total over a term matching the years left on my current loan? |
| Repayment amount and frequency | Cash-flow relief is useful only if the total cost remains acceptable. | What will principal-and-interest repayments be weekly, fortnightly or monthly? |
| Remaining versus new term | Resetting a loan to 25 or 30 years can erase the benefit of a lower rate. | Can the new lender set a term equal to the years remaining? |
| Upfront, ongoing and exit fees | Fees reduce or delay the interest saving. | Which fees are charged once, annually, monthly or on discharge? |
| Extra repayments and redraw | Restrictions can prevent you from paying the loan faster or accessing surplus payments. | Are extra payments unlimited? Is redraw available, and are there access fees or minimums? |
| Offset account | An offset can reduce interest by netting linked cash against the mortgage balance. | Will the new account remain linked after settlement, and what account fee applies? |
Compare each product over a consistent horizon. If you have 18 years left, model both loans over 18 years, then separately examine what happens if the new loan is stretched to a longer term. Keep the old repayment after refinancing only if your budget allows it and the new loan permits additional payments without penalty; doing so can shorten the payoff period.
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ASIC MoneySmart’s mortgage switching calculator estimates potential savings and the time needed to recover switching costs. Enter the current balance, current repayment schedule, remaining term, current and proposed rates, and upfront and recurring fees.
- Collect the inputs. Use the old lender’s payout statement, the new lender’s personalised quote, current balances, repayment frequency and written fee estimates.
- Enter all switching costs. Include a fixed-rate break fee, discharge charge, application fee, valuation or government charge, LMI and recurring account or package fees where applicable.
- Keep the term consistent. First compare the remaining years on the old mortgage. Then run a separate scenario for any longer term offered by the new lender.
- Read the break-even result. The calculator estimates how long cumulative interest and fee savings take to equal the switching costs. A result of 10 months means you must keep the new loan for at least that period merely to recover the switch expense.
- Stress-test the decision. The calculator assumes the rates remain constant as entered. Actual rates, repayments, fees and property values can differ, and the result is not a prediction or a guarantee of loan approval.
A simple decision frame is: projected interest saving plus fee saving over the chosen term, minus every switching cost and the value of features you lose. A lower repayment by itself is not proof of a lower total cost.
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Fixed, variable and split loans behave differently
Fixed-rate loans
Fixing can provide repayment certainty during the fixed period, but refinancing early may trigger a break fee. Ask for a date-specific quote because the fee depends on your contract, balance, remaining fixed period and market rates. Do not assume the fee is a small administration charge.
Variable-rate loans
Variable rates can rise or fall and are often easier to refinance. They may offer offset and redraw facilities, but the availability, limits and fees differ by product. Compare the lender’s policy rather than assuming your current features transfer.
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If part of the mortgage is fixed and part variable, the fixed portion can still attract a break fee while the variable portion has its own discharge and repayment rules. Request separate payout figures for each portion.
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MoneySmart explains the trade-off between rate certainty and flexibility in its fixed and variable rate guide.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Protect your offset, redraw and repayment features
Refinancing can break the link between an offset account and the mortgage. Before settlement, confirm in writing that the replacement offset account is linked to the correct loan account; after settlement, check the account details and that deposits reduce the balance used to calculate interest. MoneySmart’s offset-account guidance explains why this link matters.
Check whether the new lender’s offset is full or partial, whether it carries a monthly or annual fee, and whether multiple offset accounts are allowed. Confirm redraw access, processing times and any minimum balance. A product with a slightly lower rate can be more expensive if it charges for a feature you use heavily, while a cheaper basic loan may be unsuitable if you rely on an offset.
Step-by-step switching process
- Review the current loan. Note the balance, rate type, fixed expiry date, repayment, remaining term, offset or redraw arrangements and any arrears.
- Request a retention offer. Ask the existing lender to match or improve a competing rate and to waive fees where possible. Obtain the offer in writing.
- Order a payout statement. Request the exact discharge amount, break fee, discharge fee, accrued interest and settlement validity period.
- Check equity. Obtain a realistic valuation and determine whether the proposed loan would exceed 80% of value and trigger LMI.
- Gather competing quotes. Request personalised rates, comparison rates, repayment amounts, total repayable, term, all fees and product conditions from potential lenders.
- Run consistent-term scenarios. Use the MoneySmart calculator and include one scenario that keeps your current repayment, provided extra payments are permitted.
- Apply only after checking eligibility. The new lender will verify income, expenses, debts, credit and property details. Avoid taking on new debt while the application is assessed.
- Review loan documents. Check the rate type, term, repayment schedule, offset link, redraw rules, fee schedule and any special conditions before signing.
- Coordinate settlement. The new lender and conveyancer arrange repayment of the old loan and registration of the new mortgage. Confirm the old direct debits stop only after the old lender confirms closure.
- Verify the completed switch. Check the first statement, interest rate, repayment amount, offset connection and that no old fee or insurance charge remains unexpectedly.
What a published example does—and does not—show
MoneySmart gives an illustrative example in which borrowers choose between loans with application fees of $600 and $300. In that example, the selected lower-rate loan saves $84,040, or $280 per month, over a 25-year term and recovers switching costs in five months. Those figures describe MoneySmart’s example only; they are not typical savings, an offer or a forecast for your mortgage.
When staying put may be better
- A fixed-rate break fee or LMI premium consumes most of the projected saving.
- The new lender will only approve a much longer term, increasing total interest.
- You would lose a valuable offset, redraw or extra-repayment facility.
- Your current lender matches the rate without significant fees.
- Your income, credit profile or property value means the new application is unlikely to be approved.
- You may sell, repay or refinance again before the break-even date.
ASIC MoneySmart’s refinancing guidance notes that a different home loan could save money in interest and fees, but the result depends on the complete cost and your circumstances: debt consolidation and refinancing.
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