If your home loan rate has not changed since you signed, a refinance may lower your repayments. Whether it does depends on the size of the rate gap and the cost of switching.
This article is for clinical pharmacists who are thinking about moving their loan and want to know if the numbers stack up. It covers how to measure the saving, which costs to check, and what to ask before you apply.
What Does It Mean to Refinance to a Lower Rate?
Refinancing to a lower rate means replacing your current home loan with a new one that charges less interest. The new loan can be with your existing lender or a different one.
When you switch lender, the new lender pays out your old loan and your debt moves across. Your repayments are then worked out on the new rate. The balance does not shrink because of the switch, so the benefit comes from paying less interest each month. Our home loan refinancing page covers the process in more detail.
How Much Can You Save? A Worked Example
A lower rate saves money only when the monthly difference outweighs the costs of switching. A simple calculation shows you the break-even point.
Consider a clinical pharmacist with a $600,000 balance and 30 years left on the loan. In this illustrative example, the current rate is 6.75% p.a. and the repayment on a principal and interest loan is about $3,892 a month. Suppose a new lender offers 6.25% p.a. Over the same 30 years, the repayment drops to about $3,694 a month, a saving of roughly $197.
Now assume the switch costs $800 in total, covering discharge and any application fees. Divide $800 by $197 and you reach break-even in about four months. If the pharmacist plans to keep the loan for several years, the switch looks worthwhile. If a sale was planned within a few months, it would not.
The 6.25% figure is an assumption for this example only. Your own result will vary with your deposit or equity, your lender and your loan type. Use a refinance calculator with your actual balance and a real quote before you decide.
To see what a lower rate could mean for your repayments, call one of our team or book an appointment at a time that works for you.
Which Refinance Costs Should You Check First?
The main costs to check are discharge fees on your old loan, any application or valuation fees on the new one, and break costs if your current rate is fixed. These vary between lenders and loans, so ask for the figures in writing.
Break costs only apply to fixed rate loans. They can be significant when the fixed rate is well above where rates sit now, and smaller or nil in other situations. If your fixed term is close to ending, waiting may cost less than leaving early. Our fixed rate expiry page explains what to expect when the term finishes.
The trade-off is plain: a lower rate that costs a lot to reach can wipe out your saving. Always compare the total cost of switching against the monthly gain.
Should You Ask Your Current Lender for a Lower Rate First?
Yes, asking your current lender is worth doing before you apply elsewhere. Some lenders will reduce a rate when a customer asks, and a refinance quote from another lender gives you something concrete to point to.
The upside is that you avoid switching costs and paperwork. The downside is that your lender may say no, or offer a smaller cut than a new lender would. If that happens, you have lost only a phone call. Our guide to getting a lower interest rate covers how to approach that conversation.
Comparison Rate vs Headline Rate: Which One Matters?
The headline rate shows the interest charged, while the comparison rate is designed to fold in certain fees and charges so loans can be compared more fairly. Look at both, but do not stop there.
A comparison rate has limits. It is based on a standard loan amount and term, so it may not match your situation. Features such as an offset account or redraw can also change what a loan is worth to you. A loan with a slightly higher rate and an offset account that you use every month can work out cheaper than one without it. The trade-off is that offset loans sometimes carry a higher rate or an annual package fee, so test the maths against your own savings habits.
How Do Lenders Assess a Clinical Pharmacist's Income?
Lenders assess your income to decide whether you qualify for the new loan, and they may treat different pay components in different ways. Base salary is usually straightforward, while shift loadings, overtime and allowances can be assessed differently from one lender to the next.
This matters because a refinance is a new credit application. If a good part of your pay comes from penalty rates or extra shifts, ask a broker which lenders take those into account before you apply. That way you avoid a knock-back that could slow things down. Our page on home loans for clinical pharmacists explains how we approach this, and you can check your borrowing capacity before you start.
How Do You Know If Your Loan Is Due for a Review?
Your loan is due for a review if you have not compared it with other options for a year or more, or if your circumstances have changed. A promotion, a pay rise or more equity in your home can all open up different options.
A quick loan health check puts your current rate, fees and features side by side with what other lenders offer. It will not commit you to anything. The decision to switch stays with you, and sometimes the answer is to stay where you are.
We will run the numbers on your loan and tell you plainly whether switching makes sense.
Frequently Asked Questions
How do I know if refinancing to a lower rate is worth it?
Divide the total cost of switching by the monthly repayment saving to find your break-even point. If you expect to keep the loan well beyond that point, the switch is more likely to pay off.
What costs can apply when I refinance?
Common costs include discharge fees on your old loan, application or valuation fees on the new one, and break costs if your current rate is fixed. These differ between lenders, so ask for them in writing.
Should I ask my current lender for a lower rate first?
It is worth trying, because some lenders will reduce a rate on request and you avoid switching costs. If they decline or offer little, you can still compare other lenders.
Does the comparison rate tell me everything about a loan?
No. It is designed to include certain fees and charges, but it uses a standard loan amount and term. Features like an offset account may also change what a loan is worth to you.
