Simple hacks to refinance and cut your interest rate

Can I refinance to get a lower interest rate?

You can refinance to reduce your interest rate if another lender offers more competitive pricing and you meet their serviceability requirements. For self-employed company directors in Sydney, the challenge is not whether you can refinance but whether you can document your income in a way that satisfies a new lender's assessment criteria.

When you operate through a company structure, lenders assess your borrowing capacity differently than PAYG employees. Some lenders add back depreciation and non-cash expenses to your taxable income. Others apply a flat percentage to company profit. A handful will accept dividend income only if it has been consistently declared over two financial years. This variation means the lender offering the lowest advertised rate is not always the one that will approve your application or provide the most useful borrowing capacity.

Consider a company director refinancing a $750,000 loan in the Inner West. Their company shows a net profit of $180,000 after tax, but their individual tax return declares $95,000 in salary and $40,000 in dividends. One lender bases serviceability on salary and dividends alone, giving them a maximum borrowing capacity of $620,000. Another lender adds back $25,000 in depreciation and applies a loading to company profit, lifting capacity to $820,000. The second lender's advertised rate is 0.15% higher, but it is the only option that will approve the refinance.

How much can refinancing reduce my repayments?

A reduction of 0.50% on a $750,000 loan lowers monthly repayments by approximately $240. Over a year, that is close to $2,900 in direct repayment savings, excluding any reduction in total interest paid over the life of the loan.

The size of the saving depends on your current rate, the new rate you can access, and your remaining loan term. If you are currently on a variable rate above 6.00% and can refinance to a rate near 5.50%, the monthly difference becomes material. If your current lender has kept you on a higher rate while offering lower rates to new customers, refinancing is often the only way to access competitive pricing.

For company directors, the actual saving also depends on whether the new lender will recognise your full income. If one lender caps your serviceability at salary and dividends while another includes retained earnings or applies a more favourable income calculation, the difference in repayments may come not from the rate alone but from the loan amount you can maintain or increase. This is particularly relevant if you are refinancing to consolidate debt or access equity for business purposes.

What costs apply when refinancing for a lower rate?

Discharge fees from your current lender typically range from $300 to $500. If you are exiting a fixed rate loan early, break costs may apply depending on the remaining fixed term and movement in wholesale interest rates since you locked in.

Application fees for the new loan vary by lender. Some charge upfront fees between $600 and $1,000. Others waive application fees but require you to pay for a property valuation, which costs between $200 and $400 in Sydney. Settlement fees and legal costs add another $800 to $1,200. If you use a broker, their service is usually paid by the lender and does not add to your upfront costs. You can explore the full refinancing process to understand how each stage affects timing and cost.

If you are refinancing within two years of your current loan settlement, some lenders will claw back any cashback or upfront incentive you received. This clawback can range from $2,000 to $4,000 depending on the original offer. Always check your loan contract or ask your current lender before proceeding.

How do lenders assess income for self-employed directors?

Lenders assess company director income using one of several methods depending on their credit policy. Some calculate income as salary plus dividends declared on your individual tax return. Others apply a percentage to the company's net profit after tax, typically between 50% and 100% depending on the number of directors and shareholders. A smaller number of lenders will add back depreciation, interest, and other non-cash deductions to arrive at a higher income figure.

You will need two years of company financial statements, two years of personal tax returns, and two years of company tax returns. If your business is registered for GST, lenders will also request Business Activity Statements. Some lenders require an accountant's letter confirming your role and income, particularly if your financials show fluctuating profit or significant adjustments. If you hold a minority share in the company, some lenders will only recognise the percentage of profit that matches your shareholding.

The lender that offers the lowest rate on their website may not be the lender that approves your application. A 0.10% difference in rate is irrelevant if the lender will not accept your income structure or if they apply a discount to your declared profit that reduces your borrowing capacity below your current loan balance.

Does switching lenders affect my loan features?

Switching lenders can mean losing offset accounts, redraw facilities, or fee-free extra repayments if your new loan product does not include them. Most variable rate home loans include an offset account, but not all do. Some lenders charge a monthly fee for offset accounts or limit the number of linked accounts.

If you rely on redraw to access surplus repayments, confirm whether the new loan allows unlimited free redraws or imposes restrictions. Some lenders cap the number of redraws per year or charge a fee for each transaction. Fixed rate loans typically do not include offset or redraw, and extra repayments are often capped at $10,000 to $30,000 per year without penalty.

For company directors using personal loans to manage cash flow between dividend payments, an offset account linked to your operating account can reduce interest while keeping funds accessible. Losing that feature to save 0.20% on rate may not produce a net benefit if you regularly hold $50,000 or more in the offset.

How long does a refinance take for self-employed borrowers?

A straightforward refinance for a company director takes between four and six weeks from application to settlement. The timeline extends if your financials require clarification, if the lender requests additional documentation, or if the valuation comes in lower than expected.

Lenders will order a property valuation within a few days of receiving your application. If the valuation falls short of your assumed property value, your loan-to-value ratio increases and the lender may decline the application or require you to pay lender's mortgage insurance. In suburbs like Leichhardt, Newtown, and Marrickville where property types vary widely, a valuer unfamiliar with the local market may undervalue a renovated terrace or a warehouse conversion. If this happens, you can request a review or provide recent comparable sales, but this adds one to two weeks to the process.

Once the lender issues formal approval, settlement takes another seven to ten business days. Your current lender must provide a payout figure, and your solicitor or conveyancer will arrange the discharge of the existing mortgage and registration of the new one. If you are refinancing close to the end of a fixed rate term, timing the settlement to avoid break costs requires coordination between your broker, your solicitor, and both lenders.

When should I avoid refinancing despite a lower rate?

If your fixed rate term ends within the next three months, wait until it expires before refinancing. Break costs on a fixed loan with only a few months remaining can still reach several thousand dollars, and most of the interest saving from a lower rate will be consumed by the exit penalty.

If you plan to sell your property within the next 12 months, the upfront costs of refinancing may exceed the interest saved over that short period. A $3,000 refinancing cost divided over 12 months requires a monthly saving of at least $250 just to break even. If you are only saving $150 per month, you will not recover the cost before selling.

If your current lender has already offered you a retention rate that matches or comes within 0.10% of the lowest rate you can obtain elsewhere, refinancing may not be worth the effort. Some lenders will negotiate when you call to notify them of your intention to refinance. If they reduce your rate without requiring a full application, you avoid the documentation process, the valuation risk, and the settlement costs. However, retention rates are not always offered, and they are rarely as low as the rates advertised to new customers.

Call one of our team or book an appointment at a time that works for you to discuss whether refinancing will reduce your rate and how your company income will be assessed by different lenders.

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