Everything You Need to Know About Refinancing Rates

Switching to a lower interest rate can reduce your monthly repayments by hundreds of dollars and save thousands over the life of your loan.

For homeowners in Armadale, where property values have remained solid despite broader market shifts, refinancing to reduce your rate is often the most direct way to improve your financial position without changing your property or lifestyle. The process involves moving your existing loan to a new lender offering a lower rate, or renegotiating with your current lender to match competitive market rates. The decision hinges on whether the savings outweigh the costs of making the switch.

When the Rate Gap Justifies the Change

A rate difference of 0.30% or more typically makes refinancing worthwhile once you account for discharge and application fees.

Consider a homeowner with a $650,000 loan balance at 6.20% who identifies a new lender offering 5.70%. The monthly repayment drops from approximately $3,990 to $3,760, a saving of $230 each month. Over a year, that amounts to $2,760 in reduced repayments. Discharge fees from the existing lender generally sit between $300 and $500, while application fees for the new loan may add another $600 to $1,000 depending on the lender. Even after covering these upfront costs, the homeowner is ahead within the first few months and continues to save from that point forward.

The broader the rate gap, the faster you recover the refinancing costs. In our experience, borrowers who have been with the same lender for more than two years often find their rate has drifted well above what new customers are being offered, creating a meaningful opportunity to refinance to a lower rate.

Fixed Rate Break Costs and How They Are Calculated

If you are currently on a fixed rate and want to refinance before the term expires, break costs may apply.

Break costs are charged by your lender to compensate for the difference between the rate you locked in and the rate they can now lend that money at. If market rates have fallen since you fixed, the lender loses income and will pass that cost to you. The calculation is based on the remaining loan balance, the time left on your fixed term, and the gap between your fixed rate and the current wholesale rate.

A homeowner with two years remaining on a 3.80% fixed rate and a $500,000 balance may face break costs of $8,000 to $12,000 if current wholesale rates have dropped significantly. In some cases, the penalty outweighs the benefit of switching early. However, if you are only a few months from your fixed term expiry, or if rates have risen since you locked in, break costs may be minimal or even zero. The only way to know the exact figure is to request a payout quote from your current lender.

Switching Between Variable and Fixed Rates

Refinancing also allows you to change your rate structure, not just your lender.

Homeowners who locked in fixed rates when they were at historic lows are often sitting comfortably below current market rates and should stay put until expiry. Those on higher fixed rates from recent years, or variable rates that have climbed with the cash rate, may benefit from switching to a lower variable rate or splitting their loan between fixed and variable. A split structure offers partial protection if rates rise further while maintaining flexibility on the variable portion for extra repayments or offset account use.

Armadale's mix of period homes and modern townhouses means loan structures vary widely. Owners of older properties undergoing renovations often prefer variable loans with offset accounts to manage irregular cash flow, while those in newer builds with stable incomes may lock in certainty through fixed rates. Your choice should reflect your financial circumstances and risk tolerance, not just the advertised rate.

Comparing Rates Across Lenders Without the Guesswork

Not all advertised rates are available to all borrowers, and comparison rates do not always reveal the full cost.

Lenders assess your loan based on deposit size, employment type, loan purpose, and property location. A rate advertised at 5.60% may only be available to borrowers with a deposit above 20%, steady employment, and a property in a metro area. If you fall outside those criteria, the actual rate offered could be 0.20% to 0.50% higher. Similarly, comparison rates include some fees but exclude valuation costs, discharge fees from your current lender, and ongoing account fees that differ between products.

In a suburb like Armadale, where properties range from Victorian terraces near High Street to contemporary developments closer to Kooyong Road, lender appetite varies. Some lenders offer sharper rates for established homes in tightly held pockets, while others price more competitively for newer stock or units. A mortgage broker with access to multiple lenders can identify which ones are currently pricing your property type most favourably, rather than relying on advertised rates that may not apply to your situation.

What Happens to Your Offset Account and Redraw When You Switch

You will lose access to any funds held in an offset account or redraw facility with your existing lender once the loan is discharged.

Before refinancing, transfer any offset balance to a separate savings account or use it to reduce the loan balance at settlement. Redraw funds are often trapped during the switchover period, so plan withdrawals ahead of your settlement date. Your new lender may offer an offset account as part of the refinanced loan, but it will start with a zero balance unless you transfer funds in after settlement.

This is particularly relevant for Armadale homeowners who have built up offset balances over several years to reduce interest while maintaining access to cash. The transition requires coordination, but the structure can be replicated with the new lender if the product includes an offset feature. Not all low-rate products do, so confirm this before proceeding if offset functionality is important to your cash flow management.

Timing Your Refinance Around Settlement and Loan Discharge

Refinancing typically takes three to five weeks from application to settlement, depending on lender processing times and valuation requirements.

Your new lender will order a valuation of your Armadale property to confirm the loan amount is appropriate. If the valuation comes in below your expected figure, you may need to adjust your borrowing or provide a larger deposit to meet the lender's lending ratio. Once the loan is formally approved, your broker will coordinate a settlement date with both lenders. On that date, the new lender pays out your existing loan in full, and any remaining funds are released to you or used to cover refinancing costs.

Discharge of your old loan happens simultaneously, and your former lender will notify you once the mortgage is removed from the title. You will start making repayments to the new lender from the following month. During this period, continue making repayments to your existing lender as scheduled until you receive formal confirmation that the loan has been discharged.

How Loan-to-Value Ratio Affects the Rate You Are Offered

Lenders price loans based on the risk they carry, and your deposit size is the clearest measure of that risk.

A borrower refinancing with 30% equity will generally be offered a lower rate than someone with 15% equity, even if all other factors are identical. If your loan-to-value ratio sits above 80%, you may also be required to pay lenders mortgage insurance, which adds to the upfront cost of refinancing. However, if your property has increased in value since you purchased, you may now have enough equity to avoid LMI or access a lower rate tier without needing to contribute additional cash.

Armadale has seen consistent demand due to its proximity to the CBD, quality schools including Lauriston Girls' School, and established streetscapes. Homeowners who purchased three to five years ago often find they have gained enough equity through price growth and loan repayments to refinance into a more favourable rate band without additional funds.

Call one of our team or book an appointment at a time that works for you.

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