Can I Refinance to Get a Lower Interest Rate?

You Can Refinance to Reduce Your Rate, but Timing Determines Whether You'll Save

You can refinance your mortgage specifically to secure a lower interest rate, and for business owners with commercial or residential property debt, even a 0.5% rate reduction can mean tens of thousands of dollars over the life of the loan. The question isn't whether it's possible - it's whether the numbers work once you factor in exit fees, application costs, and potential break costs on fixed loans.

Most business owners we speak with are paying an interest rate they locked in two or three years ago. If you took a fixed rate at 5.2% in 2022 and the market is now offering variable loans at 4.7%, the difference isn't trivial. On a $600,000 loan, that's roughly $3,000 a year in interest savings. Over ten years, that compounds into meaningful capital you could redirect into your business.

The decision to refinance your home loan comes down to a specific calculation: will the interest savings outweigh the costs of switching? Let's work through what that looks like in practice.

What It Costs to Switch Lenders

Refinancing typically involves discharge fees from your current lender, application fees with the new lender, and potentially break costs if you're exiting a fixed rate early. Discharge fees usually sit between $300 and $600. Application fees vary, but some lenders waive them to attract refinancing customers. Break costs are the unpredictable factor - they depend on how much time remains on your fixed term and how much rates have moved since you locked in.

Consider a business owner who took a three-year fixed rate at 4.8% with two years remaining. If current fixed rates are lower, the lender has lost revenue by locking in that higher rate, and they'll charge you to exit early. Break costs can run into thousands, or they can be negligible if rates have risen since you fixed. You won't know until you request a payout figure from your lender.

We regularly see scenarios where someone assumes they can't refinance because they're on a fixed rate, but when they check the actual break cost, it's $800 - easily recovered within six months of interest savings at the new rate. The calculation matters more than the assumption.

Fixed Rate Break Costs: How the Calculation Works

Break costs are calculated based on the difference between your fixed rate and the current wholesale rate your lender can get for the remaining fixed period. If you're paying 5.5% and your lender can now only lend that money out at 4.9%, they've lost income. They charge you the present value of that lost income, adjusted for the time remaining.

Some lenders publish break cost calculators on their websites. Most don't. The only reliable way to know is to call your current lender and request a discharge statement with break costs itemised. That figure is usually valid for 30 days.

How Much Rate Difference Makes Refinancing Worth It

A 0.3% rate reduction rarely justifies the effort unless you're on a very large loan. A 0.5% difference starts to make sense for loans above $400,000. Anything above 0.7% is almost always worth pursuing, assuming no prohibitive break costs.

As an example, a business owner with a $750,000 mortgage refinancing from 5.4% to 4.7% would save roughly $5,250 per year in interest. If the total cost to switch - including discharge fees, application fees, and minor break costs - came to $2,000, the breakeven point is less than five months. After that, it's pure savings flowing back into your cashflow.

The comparison rate published by lenders includes most fees and gives you a more accurate sense of the true cost of the loan. When you're comparing rates, focus on comparison rates rather than advertised headline rates. A lender offering 4.6% with $1,200 in fees might be more expensive over time than one offering 4.7% with no ongoing fees.

What Happens to Your Repayments When You Switch

Reducing your interest rate doesn't automatically reduce your monthly repayments unless you choose to restructure the loan that way. You can keep the same repayment amount and pay off the loan faster, or you can lower your repayments and improve monthly cashflow. For business owners managing uneven income, that flexibility matters.

If you're paying $3,800 per month at 5.2% and you refinance to 4.6%, you could drop your repayments to around $3,550 or keep paying $3,800 and cut years off your loan term. The second option saves more in total interest. The first option frees up capital now. Which approach suits you depends on where your business is in its cycle.

Some business owners refinance specifically to access equity while securing a lower rate. If your property has appreciated and you need working capital or want to fund equipment, refinancing lets you do both at once. That's where a loan health check becomes useful - you're not just chasing a lower rate, you're restructuring your debt to match your current goals.

Variable Versus Fixed: What Works for Rate Reduction

Most business owners refinancing to cut their rate are moving from a fixed term that's expired or close to expiry, or from a variable rate they've been on for years without reviewing. If your fixed rate has expired, you've likely rolled onto your lender's standard variable rate, which is almost never competitive. That's the point where refinancing makes the most sense.

Variable rates give you flexibility to refinance anytime without break costs. Fixed rates lock in certainty but trap you if rates fall. A split loan - part fixed, part variable - lets you reduce risk while keeping some portion of your debt flexible enough to refinance or pay down without penalty.

When you refinance, you're not stuck with the same loan structure you had before. You can move from a fixed rate to variable, or vice versa, depending on where you think rates are heading and how much certainty you need over the next few years.

Call one of our team or book an appointment at a time that works for you. We'll pull your current loan details, check the market, calculate the actual cost to switch, and give you the numbers in plain terms so you can decide whether refinancing makes sense for your situation right now.

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