How to Refinance to a Lower Interest Rate

Your current lender won't call to tell you when a lower rate becomes available.

If you're still paying the same rate you locked in 12 or 18 months ago, there's a reasonable chance you could reduce your monthly repayments by switching to a lender offering a more competitive rate. For self-employed business owners, the benefit isn't just about saving on interest. A lower rate can improve monthly cash flow, which matters when your income fluctuates or when you're reinvesting profits back into the business.

Why Self-Employed Borrowers Get Stuck on Higher Rates

You're often quoted a rate based on the lender's assessment of your income documentation at the time of approval. If you applied with one or two years of tax returns showing modest profit, or if your accountant structured your income to minimise tax, you may have been placed on a rate tier that reflects perceived risk rather than actual capacity to repay. Even if your business has grown or your financials have improved, your lender won't automatically adjust your rate to match.

In our experience, self-employed clients refinance more frequently than salaried borrowers, not because they're chasing marginal differences, but because their circumstances change and their original loan no longer reflects their current position.

When Refinancing to a Lower Rate Actually Makes Sense

Refinancing works when the reduction in your rate outweighs the cost of switching. If you're coming off a fixed rate and reverting to a standard variable rate that's significantly higher than what new borrowers are being offered, refinancing to a lower rate can deliver immediate savings without needing to restructure your loan.

Consider a business owner with a loan balance around the median for owner-occupiers in Melbourne's eastern suburbs. If their current variable rate sits above what's being offered to new customers with similar loan-to-value ratios, they could reduce monthly repayments meaningfully. The difference between paying a legacy rate and accessing a current competitive rate can amount to thousands each year, which flows directly into your operating account rather than the lender's revenue line.

How Lenders Assess Income When You Refinance

Lenders don't assess self-employed income the same way during a refinance as they do for a new purchase. Most still require two full years of financials, but if your most recent year shows stronger revenue or profit, you may qualify for a rate that wasn't available when you first borrowed. Some lenders will also accept a year-to-date profit and loss statement if your business operates on a consistent model, which can help if your income has increased recently.

The challenge is that not all lenders treat business income the same way. One lender might add back depreciation and certain expenses when calculating your serviceability, while another might apply a flat percentage reduction to your declared income. If your original broker or lender assessed your application conservatively, switching to a lender with a different assessment method can open up access to lower rate tiers even if your actual income hasn't changed.

What the Refinance Process Involves

You'll need updated financials, usually your two most recent tax returns and notices of assessment, plus recent business activity statements if you're a sole trader or in a partnership. If you're a company director, the lender will want to see company tax returns and often a letter from your accountant confirming your ongoing role and income.

Most lenders will also require a valuation of your property. This is arranged by the lender and usually costs between a few hundred dollars and around $600, depending on location and property type. If your property has increased in value since you purchased, you may now sit in a lower loan-to-value ratio bracket, which can qualify you for a lower rate without needing lender's mortgage insurance.

The application itself typically takes two to four weeks from submission to approval, assuming your documentation is current and your financials are clear. Settlement usually occurs within another two to four weeks after approval. During that time, you'll continue making repayments to your existing lender as usual.

Offset Accounts and Features That Actually Matter

A lower rate means little if you lose access to features you're actively using. If you're parking operating cash or tax reserves in an offset account, make sure your new loan includes one. Not all low-rate products do, and the difference in effective rate between a loan with a full offset and one without can be more significant than the headline rate difference.

Some lenders also restrict redraw on loans for self-employed borrowers or impose processing times that make accessing funds inconvenient. If you've been using redraw to smooth cash flow during slower months, confirm the new lender's redraw policy before you proceed. The home loan refinancing structure should support how you actually run your business, not just deliver a lower number on paper.

Fixed or Variable After You Refinance

If your fixed rate period is ending, you'll need to decide whether to fix again or move to a variable rate. Variable rates give you flexibility to make extra repayments and access offset accounts without restriction. Fixed rates give you certainty, which can help with budgeting if your business income is uneven, but they come with limitations on extra repayments and usually no offset during the fixed period.

Some borrowers split their loan, fixing a portion for stability and leaving the rest variable for flexibility. The right structure depends on whether you value certainty or control, and whether you're likely to pay down the loan faster or keep the balance steady while focusing capital on the business.

Costs You'll Actually Pay

Most refinances involve a discharge fee from your current lender, typically between $150 and $400. Your new lender may also charge an application fee, though many brokers can negotiate this down or find lenders that waive it. If you're refinancing within a fixed rate period, break costs can apply, and these are often significant enough to outweigh any rate saving unless you're moving a large balance or have only a short period remaining.

Settlement fees and government charges are usually minimal for a standard refinance where you're not increasing your loan amount. If you're releasing equity at the same time, additional valuation or legal costs may apply.

When You Should Review Rather Than Refinance

Not every rate difference justifies switching lenders. If your current lender is within a marginal range of the lowest available rate, it's worth asking them to review your rate before going through a full refinance. Some lenders will adjust your rate to retain you, particularly if your loan balance is substantial or your equity position has improved.

A loan health check can show whether the potential saving justifies the cost and effort of switching. If the difference amounts to less than a few thousand over the next two years, and you're planning to pay the loan down quickly or sell the property, staying put might make more sense.

Call one of our team or book an appointment at a time that works for you. We'll review your current loan structure, compare what's available based on your updated financials, and walk through whether refinancing delivers a genuine improvement or whether a rate review with your existing lender is the more practical option.

Frequently Asked Questions