Switching Home Loan Lenders: How It Works and When It Pays Off

Switching home loan lenders means moving your mortgage from your current lender to a different one, usually to chase a lower interest rate, lower fees, or features that suit you better. Yes, you can change home loan lender, and for many borrowers the process is more straightforward than they expect. The honest answer to whether it pays off is that it depends on your numbers and each lender’s criteria, so this guide walks through how switching home loan lenders works, what it costs, and how to tell whether the move leaves you better off.

This is general information only. What suits you will depend on your circumstances and each lender’s criteria.

The guidance below draws on the Australian Securities and Investments Commission, known as ASIC, and its MoneySmart service, the government’s independent money guidance. Whether switching makes sense depends on your figures, so treat this as a way to gather the facts, not as advice that switching is right for you.

If you are weighing up a move, the rate, costs and lender decisions come together on our refinance home loans hub.

Can you switch mortgage providers, and is it hard?

You can switch mortgage providers at almost any time, and it is not as hard as many people assume. The new lender handles most of the heavy lifting once your application is approved, including paying out and closing your old loan. Switching mortgage providers is, at its core, taking out a new loan with a different lender and using it to repay the existing one.

The catch is not the paperwork. It is the maths. MoneySmart is direct that the cost of switching can outweigh the savings, so the real work is checking whether a lower rate actually leaves you ahead once the costs of moving are counted. The steps below are how you do that check.

Start by asking your current lender

The first step is the one most people skip. MoneySmart suggests telling your current lender you are planning to switch to a cheaper loan offered by a different lender. To keep your business, your lender may reduce the interest rate on your current loan. If that happens, you get a better deal without the cost or effort of moving at all.

It costs nothing to ask, and it gives you a benchmark. Whatever your lender offers becomes the number any new lender has to beat. If your current lender will not move, you have lost nothing and you have a clearer picture of what you are comparing. Having at least 20% equity in your home strengthens your position in that conversation.

Add up the cost of switching mortgage providers

This is the part that decides whether the move is worth it. MoneySmart says to compare all the fees and charges before you decide, because a lower rate does not help if the costs of getting there eat the gain.

The switching costs MoneySmart names include a break fee, which can apply on a fixed rate loan if you exit before the fixed term ends; a discharge fee, also called a termination fee, charged by your current lender to close the loan; an application or establishment fee charged by the new lender to set up the loan; a switching fee; stamp duty, which can apply in some situations; and lenders mortgage insurance, covered below.

These amounts vary by lender and by loan, so the task is to get each one in writing rather than to assume a figure. Once you have them, you can test the trade off properly against the savings a lower rate would bring.

Check whether lenders mortgage insurance applies again

Lenders mortgage insurance, often shortened to LMI, is the cost that catches people out most often when they change home loan lender. MoneySmart points out that LMI may apply when switching if you have less than 20% equity in your home. Equity is the share of the property you actually own, that is, its value less what you still owe.

If your equity has grown since you first borrowed, you may sit above the 20% mark and avoid this cost. If it has not, a new lender may require LMI again, even though you paid it the first time, and that can wipe out the saving from a lower rate. That makes the equity check an early step, because it can change the maths significantly.

It is also worth asking your current lender about an LMI refund, which can apply in some cases when you move early. The detail on how this insurance works sits in our guide to what lenders mortgage insurance is, and the ways borrowers reduce or sidestep it are in how to avoid LMI.

Compare lenders on the comparison rate, not the headline

When you line up offers from different mortgage providers, compare them on the same basis. MoneySmart describes a comparison rate as a single figure of the cost of the loan that includes the interest rate and most fees. It exists so a low advertised rate cannot hide a loan that is expensive once the fees are added in.

There is real room to move here. MoneySmart notes there can be an interest rate difference of more than 2% in variable home loan rates on the market, which is a wide spread once you read it against the size of a mortgage.

Comparing the comparison rate across lenders, rather than the headline number, is how you see where you actually sit. Our comparison rate explained guide goes deeper on what that figure does and does not capture.

One caution from MoneySmart on the tools you use to compare: comparison websites may not cover all your options and are run as profit-driven businesses, so treat them as a starting point rather than a complete view of the market.

Weigh the features and the loan term

A cheaper rate is not the only reason to switch lenders, and the right features can matter as much as the number. A variable interest rate can go up or down as the lending market changes, for example when official cash rates change, while a fixed interest rate stays the same for a set period, for example five years, after which it moves to a variable rate or you negotiate another fixed term.

Two features come up most often.

The question is which of these you would genuinely use, and whether any extra cost for them is worth it for how you manage money.

Run the numbers before you commit

The final step is to test the trade off with real figures rather than a hunch. MoneySmart suggests using the mortgage switching calculator to work out whether changing home loans could save you money, and it is clear the results are only estimates.

A quick rate check is a useful companion. It shows whether the rate you pay now, or the rate on offer, still looks competitive once you read it alongside the comparison rate, before you go to the effort of switching.

You can use a rate check to see whether your current rate, or a proposed new rate, still looks competitive. It also helps to see what those rates turn into each month, which our guide to home loan repayments walks through.

How to change home loan lender, step by step

Pulling it together, here is the order to work through when switching home loan lenders.

Where Finance Lab fits in

Gathering these facts gets the decision on the table. Reading them against your income, your equity, your goals, and a panel of lenders is where it gets personal, and that is where guidance helps. The team at Finance Lab can talk you through how the rate, the fees, the features, and the loan term come together for your circumstances, and which lender criteria you may need to meet.

Frequently asked questions