Switching your home loan - what you need to consider

It’s no surprise that many people are looking to switch their mortgage to another provider with interest rates continuing to rise.

Switching mortgage providers can be a smart move if you’re looking to reduce your interest rate, but before you make the switch, it’s important to do your homework to ensure the benefits outweigh the costs.

Lending Specialist Manager at IOOF Finance Choice, Claire Charlton, shares her tips.

Tip 1: Ask your current lender for a better deal before switching

Before making the decision to switch, it’s important to give your current lender an opportunity to offer you a better deal, says Claire.

"When you switch your mortgage to a new lender, it will be treated as a new application which means your property will need to be valued again and you’ll be required to pay new application fees. 

"You may be able to save yourself some time by speaking initially to your current lender to see if you can negotiate a better rate. If you can agree to a better deal, compare it to other offers on the market and don’t forget to ask about any additional fees and costs."

Tip 2: Consider the timeframe for the new loan

"If you opt for a home loan with a lower interest rate and a longer mortgage term, you may well pay lower monthly repayments but over the long-term, you’ll end up paying more interest. 

"If you do decide to switch your mortgage with another lender, try to negotiate to have the same loan period as your current mortgage," says Claire.

 Get a home loan health check

Our home loan health check could help you to:

  • find ways to fine-tune your loan
  • get more certainty or flexibility on interest rate options
  • reduce your repayments
  • pay off your loan sooner.

Start the conversation to see how an IOOF Finance Choice Lending Specialist can help you. Enquire Now

Tip 3: Compare the costs of switching your mortgage

There are costs involved when switching your mortgage to another lender, so you’ll need to work out if you’ll save money by doing this.

According to Claire, these are some of the fees and charges you want to consider:

  • Break fee: if you’re on a fixed rate loan you may need to pay a “break fee” which can be thousands of dollars
  • Borrowing costs: you might be charged upfront fees when you switch to another lender. This includes application and processing fees
  • Switching fee: you could be charged for staying with your current lender by switching to a different / new loan product
  • Discharge or termination fee: you may be charged a fee when you close or refinance your current loan. 

Tip 4: Check what you’ll save by switching your mortgage

Once you have an idea of which mortgage providers you’re considering switching to, including the required fees, it’s worth you crunching the numbers with an online mortgage switching calculator.

"Your mortgage is a long-term debt so even a small difference in interest adds up over time. For example, an interest rate of just 0.5% lower, could save you thousands of dollars," says Claire.

Case study

Sam has a home loan with Commonwealth Bank on a property in Brisbane of $545,000. His loan has a remaining 25 years.

Sam decides to refinance with Macquarie Bank which will see him save 0.58% on interest. As a result, he’ll receive a total saving of $15,840 within 5 years of refinancing.

Below are the refinance costs he would need to pay:

  • $350 discharge fee
  • $363 application fee
  • $416 mortgage transfer and registration

Total cost $1,129


In some cases, switching your mortgage may cost you a lot more than the benefits you’ll gain. Here are two scenarios where this is likely to happen.

Your equity is below 20% of the property’s value

If you’ve paid off less than 20% of the property, you’ll have to pay lenders mortgage insurance when you switch. This can occur even if you already paid it on the first home loan.

Your loan amount is small or you’re selling soon

Depending on your circumstances, if you don't have much debt left on your mortgage, then the savings from switching might not be worth the hassle.
Likewise, if you're planning on selling within a few months, the effort and costs involved in switching could also negate any financial gains.

"The savings that you gain from switching mortgages to a lower interest rate may far outweigh the costs; however, that's not always the case.

"If you currently have a fixed rate loan, or you’ve only paid off a small amount, you may be charged penalties and so, it’s really important to calculate the switching costs before you decide to move," says Claire.

For more information you can contact financechoice@ioof.com.au

This document has been prepared by IOOF Finance Choice Pty Ltd ABN 74 129 728 963 ACL 385191 (IOOF Finance Choice). The information in this document contains general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document you should assess your own circumstances or seek advice from your financial adviser. While IOOF Finance Choice has taken all reasonable care in producing the information in this document, IOOF Finance Choice makes no representations in respect of, and, to the extent permitted by law, excludes all warranties in relation to the accuracy or completeness of the information. IOOF Finance Choice, its officers, employees, directors and contractors exclude, to the maximum extent permitted by law, all liability whatsoever for any loss or damage howsoever arising out of reliance, in whole or in part, on the information in this document.