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Switching Lenders: Refinancing and Changing Banks

Over the life of your loan, you might want to switch lenders. Maybe your current lender’s rates have risen while competitors are cheaper, or you want better features. Switching is possible, but it has costs. Here’s what you need to know.

When to switch:

Rate difference: if another lender is 0.5%+ cheaper, switching might make sense.

Example: AUD 400,000 loan at 0.5% lower rate = AUD 2,000/year savings. If switching costs AUD 3,000–AUD 4,000, you break even in 1.5–2 years. Over a 25-year loan, switching is worthwhile.

Features: your current lender might not offer offset accounts or redraws; a competitor does. Switching for better features is valid.

Service issues: if your lender’s service is poor, switching gives you fresh start.

Costs of switching:

Lender fees: your current lender might charge a “discharge fee” (typically AUD 300–AUD 500). Not all lenders charge this, but some do.

New lender fees: application fee, valuation fee, legal/conveyancing fee for the new loan. Typically AUD 1,500–AUD 3,000 total.

Refinancing costs: if you’re breaking a fixed-rate loan, break fees apply (see article 4028).

Total cost: AUD 3,000–AUD 5,000+ depending on loan size, break fees, and lender policies.

The maths:

Current loan: AUD 500,000 at 4.75% New loan offer: AUD 500,000 at 4.25% Savings: 0.5% × AUD 500,000 = AUD 2,500/year

Switching costs: AUD 4,000

Break-even: 1.6 years (AUD 4,000 / AUD 2,500)

If you’re staying in the loan for 5+ more years, switching is profitable. If you’re selling in 2 years, it might not be.

How to switch:

  1. Get a pre-approval from the new lender

  2. Submit an application for refinancing

  3. New lender orders valuation and processes your loan

  4. Once approved, new lender contacts your current lender and requests a discharge

  5. Settlement: new lender pays off your current loan, and you now have a loan with the new lender

Timeline: typically 2–4 weeks from application to settlement.

During the switch:

Your mortgage continues with the current lender until the refinance settles. You don’t miss a payment or have a period without a loan.

Rate lock:

If rates are moving fast, ask the new lender for a rate lock (usually 30–60 days). This protects you if rates rise while your application is processing.

What you need:

The new lender will ask for similar documentation as your original application: payslips, tax returns, bank statements, and proof of the current loan (usually provided by the lender directly).

If your situation has changed significantly (new job, lower income, new debts), disclosure is important. The new lender might decline or offer less favorable terms if your position has weakened.

Negative equity and switching:

If your property has fallen in value and you’re in negative equity, switching becomes harder. Some lenders won’t lend on a property below current LVR limits.

Example: you bought for AUD 600,000, borrowed AUD 480,000 (80% LVR). Property is now worth AUD 550,000, you still owe AUD 450,000 (81.8% LVR). Some lenders won’t refinance at 81.8% LVR.

In this case, you might be stuck with your current lender until property values recover or you’ve paid down the loan further.

Strategic refinancing:

Some investors refinance multiple times:

  • Start with Bank A at 4.5%
  • After 2 years, Bank B offers 4.2%, refinance
  • After another 2 years, Bank C offers 3.9%, refinance again

Each refinance costs money, but if you’re saving 0.3%+ each time and you’re staying in the loan long-term, it compounds to significant savings.

My take:

Refinancing makes sense if:

  • Rate savings are substantial (0.5%+)
  • You’re staying in the loan for years (to recoup costs)
  • Switching costs are transparent and reasonable

Shop around every 2–3 years. Loyalty doesn’t pay—lenders offer better rates to new customers than existing ones.

But don’t refinance obsessively over small rate changes. Transaction costs add up. A 0.1% saving (AUD 500/year on a AUD 500,000 loan) isn’t worth AUD 3,000 in refinancing costs.

Use a broker to streamline the process and potentially negotiate better terms. Your effort and their expertise can save thousands over a lifetime of lending.