Ask the current lender before paying to leave.
Moneysmart recommends asking your current lender for a better deal before switching. This creates a useful baseline and may avoid discharge, application and setup costs. Ask for the revised rate, fees, features and repayment, then compare it with the full cost of moving.
A retention offer is not automatically the best option. It is simply the first real number the alternatives should beat.
- Current rate, repayment and remaining term
- Repriced rate and any package changes
- Ongoing fees and useful features
- Cost to discharge or change the current loan
Calculate the switching cost and recovery time.
Refinancing can involve discharge fees, application or valuation costs, government charges and new package fees. A fixed-rate loan may also have a break cost. Add those costs before estimating the benefit from a different rate or fee structure.
Then divide the switching cost by the expected monthly saving to estimate a simple recovery period. This does not predict future rates, but it exposes whether the move needs months or years before it starts to help.
If the likely recovery period is longer than you expect to keep the new loan or property, the switch may not solve the right problem.
Check equity before assuming the same options are available.
The new lender will assess the property value and total lending. If the available equity is limited, the loan-to-value ratio may reduce the options or create lenders mortgage insurance costs. An online property estimate is not the lender valuation.
If additional funds are part of the refinance, define their purpose and include the larger balance in the repayment and total-interest comparison.
- Estimated property value
- Current loan balance and any linked lending
- Additional amount requested
- Resulting loan-to-value ratio
- Repayment and interest impact of the larger balance
Pay for features you will actually use.
Offset accounts, redraw, repayment flexibility and split structures can be valuable when they match your behaviour. They can also come with fees, restrictions or a higher rate. Compare the net value, not the feature name.
- How much money is likely to stay in an offset?
- Will extra repayments be regular or occasional?
- Are redraw rules suitable for the intended use?
- Would fixed-rate restrictions matter?
- Does a package fee outweigh the likely benefit?
Do not hide the cost inside a longer loan term.
A refinance can lower the monthly repayment by extending the loan back over a longer term. That may improve short-term cash flow while increasing the total interest paid. Compare the new repayment over both the remaining term and the proposed longer term.
If debt consolidation is included, check whether shorter debts are being converted into debt that lasts for decades. The repayment can fall while the total cost rises.
If the goal is to save money, compare total interest and the planned payoff date as well as the next monthly repayment.