Can You Refinance to Get a Lower Interest Rate?
You can refinance to access a lower interest rate if current market offerings are materially below what you are paying and the cost of switching does not erase the benefit. The decision comes down to quantifying the rate differential, calculating exit costs from your existing lender, and confirming approval at the new rate before committing.
Most lawyers refinancing for rate reduction are either coming off a fixed period that expired into a higher variable rate, or they have been on the same variable rate for several years while advertised rates for new customers dropped. In both situations, the existing lender typically will not offer their lowest rates without a formal application to refinance, which makes switching lenders the more direct option.
The threshold for refinancing to make financial sense is usually a minimum rate reduction of 0.30% to 0.50%, depending on your loan size and how long you intend to hold the property. Below that margin, discharge fees, application costs, and the time required to settle often outweigh the interest saved in the first two to three years.
What Exit Costs Apply When Refinancing?
Exit costs depend on whether you are on a variable rate, a fixed rate, or whether your fixed term has already ended. Variable rate loans typically incur a discharge fee of around $300 to $400 and, in some cases, a settlement fee of similar value. These are standard administrative charges and are disclosed in your loan contract.
If you are still within a fixed rate period, you will also incur break costs. These are calculated based on the difference between your fixed rate and the lender's current wholesale funding cost for the remaining term. The calculation is not transparent, and break costs can range from a few hundred dollars to tens of thousands depending on how far rates have moved since you fixed and how much time remains.
Consider a lawyer with a $600,000 fixed rate loan at 2.5%, locked in with two years remaining. If the lender's current wholesale rate for a two-year term is 4.0%, the break cost will reflect the lender's loss from not receiving that higher rate over the remaining period. In that scenario, break costs could exceed $15,000, which would eliminate any benefit from refinancing unless the new variable rate is substantially lower and the loan is held for many years.
Before applying to refinance a fixed loan, request a break cost estimate from your existing lender. This figure is date-sensitive and will change as market rates shift, so confirm the estimate close to your intended settlement date.
How Much Can You Save by Refinancing to a Lower Rate?
The amount saved depends on the rate reduction, your loan balance, and your remaining loan term. A 0.50% reduction on a $500,000 loan balance reduces annual interest by $2,500. Over five years, that totals $12,500 in interest savings, assuming the loan balance remains static and the rate differential holds.
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If you refinance to a lower rate and maintain the same repayment amount rather than reducing your monthly obligation, the additional principal repayment accelerates your loan term and compounds the interest saving. Using the same $500,000 example, refinancing from 5.0% to 4.5% and keeping repayments constant could reduce the loan term by around 18 months, depending on how much principal remains.
These figures assume no break costs, no rate changes, and no additional drawdowns. For lawyers with variable income or upcoming parental leave, refinancing to reduce repayments rather than shorten the term may offer more flexibility. Both outcomes are valid, but the decision should align with cash flow priorities rather than an abstract notion of paying off debt faster.
Fixed Rate or Variable Rate After Refinancing?
After refinancing, the choice between fixing and staying variable depends on your view of rate movements and your tolerance for repayment fluctuation. Variable rates give you the ability to make extra repayments without penalty and to benefit immediately if rates fall. Fixed rates provide certainty over your repayment amount for a defined period but lock you into that rate even if the market moves lower.
In our experience, lawyers with stable income and high repayment capacity often prefer variable rates, particularly if they plan to make lump sum repayments from bonuses or distributions. If you are managing cash flow around partnership capital contributions, parental leave, or business acquisition, fixing a portion of your loan can reduce exposure to rate increases without sacrificing all flexibility.
Split rate structures, where part of the loan is fixed and part remains variable, allow you to benefit from rate falls on the variable portion while maintaining repayment certainty on the fixed portion. The allocation depends on your circumstances, but a 50/50 split is common for lawyers who want some protection without full commitment.
Does Refinancing Affect Your Borrowing Capacity?
Refinancing does not change your borrowing capacity unless you take additional funds at the same time. If you are refinancing to reduce your rate on the existing balance, your income, liabilities, and expenses remain unchanged, so your serviceability assessment will be similar to your original approval.
If you intend to release equity or consolidate other debts during the refinance, the additional borrowing is assessed under current serviceability rules. This may require updated payslips, tax returns, and a fresh assessment of your living expenses. For lawyers with variable income, this can complicate approval if your most recent financial year shows lower earnings than the year your existing loan was approved.
Refinancing also provides an opportunity to restructure your loan to align with future plans. If you are considering purchasing an investment property or transitioning to part-time work, setting up your loan with an offset account, interest-only options, or separate splits can reduce the need for further refinancing later.
What Approval Time Should You Expect?
Most refinance applications for lawyers are assessed within one to two weeks if the documentation is complete and there are no servicing issues. Approval time depends on the lender's current volume, the complexity of your income structure, and whether you are taking additional funds.
Settlement typically occurs within four to six weeks after approval, depending on how quickly your existing lender processes the discharge and whether there are any title issues. If you are refinancing an investment property held in a trust or company structure, allow additional time for the lender to review the trust deed and corporate documents.
Some lenders offer expedited settlement for refinances, particularly where no additional borrowing is involved. If your fixed rate has expired and you are paying a higher revert rate, flagging the urgency with your broker can help prioritise the application and reduce the time you spend on the elevated rate.
When Should You Not Refinance?
Refinancing is not appropriate if the cost of exiting your current loan exceeds the interest you will save over a realistic holding period. If you plan to sell the property within 12 to 24 months, the upfront costs of refinancing are unlikely to be recovered unless the rate reduction is substantial.
If your current loan includes features you cannot replicate elsewhere, such as a premium offset account, portability, or specific redraw terms, confirm that the new loan offers equivalent functionality before proceeding. Lawyers who rely on offset accounts to manage trust account distributions or retained earnings should verify the offset calculation method and any account fees that apply.
Refinancing also resets the clock on your loan term unless you explicitly request a shorter term or maintain higher repayments. If you are eight years into a 30-year loan and refinance to a new 30-year term, you extend your total repayment period by eight years unless you adjust your repayment amount to compensate.
If you would like to confirm whether refinancing suits your current position, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Can I refinance just to get a lower interest rate?
You can refinance solely to access a lower interest rate if the rate reduction is material enough to justify exit costs. A reduction of at least 0.30% to 0.50% is usually required to make refinancing worthwhile over a two to three year period.
What exit costs apply when refinancing a home loan?
Exit costs typically include a discharge fee of $300 to $400 and potentially a settlement fee. If you are still within a fixed rate period, break costs may also apply and can range from hundreds to tens of thousands of dollars depending on rate movements and remaining term.
How much can I save by refinancing to a lower rate?
A 0.50% rate reduction on a $500,000 loan saves approximately $2,500 per year in interest. Over five years, this totals around $12,500, assuming the loan balance and rate differential remain constant.
Should I fix or stay variable after refinancing?
Variable rates offer flexibility for extra repayments and immediate benefit if rates fall. Fixed rates provide repayment certainty but lock you in even if rates drop, so the choice depends on your cash flow needs and rate outlook.
How long does refinancing take to settle?
Most refinance applications are assessed within one to two weeks, with settlement occurring four to six weeks after approval. Timing depends on lender processing, discharge speed from your existing lender, and whether additional borrowing is involved.
