The Reserve Bank of Australia board has this week lifted official interest rates by 25 basis points to 3.85 per cent, likely prompting mortgaged homeowners to contemplate whether they are better off switching lenders.

The board is nervous because inflation – which has fallen substantially since its peak in 2022 – picked up in the second half of 2025.

It now considers inflation is likely to remain above the RBA’s 2-3 per cent target for some time.

Tuesday’s increase is the first rise in the cash rate in nearly two years and is likely to rattle homeowners who are also battling with cost-of-living pressures.

Treasurer Jim Chalmers told Parliament on Tuesday that the rise would be difficult news for millions of Australians with a mortgage.

“While today’s decision was widely expected, obviously that doesn’t make it any easier,” he said.

The decision will no doubt prompt many to consider refinancing to take advantage of a better interest rate on their home loan, and therefore lower monthly repayments – which, in turn, mean extra cash for home improvements or to pay off a loan faster.

The process involves replacing your current loan with a new one, with a lower interest rate or more more favourable loan terms.

Source: Canstar

Shopping around

When Danielle* saw a competing bank offering a lower interest rate than her bank last year, she couldn’t help but wonder if it was worth switching.

The 32-year-old Sydneysider, who didn’t want to give her surname, said repayments on her two-bedroom apartment rose and fell a few times last year, making her personal budgeting more challenging.

“I pulled up a calculator and could see that I could save hundreds if I switched banks so approached a mortgage broker to make sure my comparisons were accurate,” the PR executive said.

Should I refinance?

With most banks swift to pass on the Reserve Bank’s interest rate rise, Danielle is one of thousands of mortgage-holders wondering if they will be better off switching lenders.

Mortgage broker Rebecca Jarrett-Dalton, of Two Red Shoes, predicted lenders would promote competitive offers, including extra discounts and interesting fixed rates. They offer borrowers a chance to save interest and start to build back reserves.

“Competition has an impact on the market, making consumers think and look around, putting the bigger lenders on notice, which requires them to be a bit more innovative or competitive,” Jarrett-Dalton said.

When considering which lender to go with, it’s crucial to ensure any new loan has all the features you want, such as an offset account.

“Also, consider your future plans and how that would impact which lender you ultimately decide to go with,” Jarrett-Dalton said.

If you decide to make the switch, there’s a bit of unavoidable paperwork to get through. Photo: Canva

Call your lender first

Before making the switch, it’s worth considering whether you could get a cheaper rate by staying where you are.

To do this, research competitor rates and use an online mortgage switching calculator to see just how much money you could save with a lower interest rate.

Then call your lender and highlight your loyalty and strong repayment history, before asking if it will match the lower rates in the market.

Be prepared to mention switching lenders if negotiation isn’t forthcoming.

If you believe there are better rates in the market, it’s worth speaking to a mortgage broker to see if they can haggle with another lender on your behalf.

Make sure you’re comparing apples with apples by looking beyond the interest rate being offered when comparing lenders.

Making a move

If you do decide you’re better off refinancing and you’ve found loan features that can help you save money – such as a linked offset account or a redraw facility – you’ll need to gather relevant information, such as recent pay slips, bank statements and identification.

Once you’ve submitted your application and the new lender has completed a valuation of your home, if you go ahead, you will need to sign loan documents.

Your existing lender will discharge the old loan, and the replacement loan will be settled so you can start making repayments on the new mortgage.

Make sure to shop around for a better deal at least once a year.

Republished from View.com.au