Get the full cost of switching
Start with the outstanding balance, current rate and remaining term. Then collect the new rate, annual fees and all switching costs. These can include discharge or fixed-rate break fees, application and valuation fees, legal costs and new lenders mortgage insurance.
Ask your current lender for a better rate too. Repricing an existing loan can produce savings with fewer switching costs.
Compare the same remaining term first
Take a $500,000 balance at 6.5% with 20 years left. Switching to 6% over the same 20 years reduces the monthly P&I payment from about $3,728 to $3,582. With $3,000 in upfront costs and no ongoing fees, the net saving after five years is about $9,190.
Constant rates, monthly repayments, no offset and the same 20-year remaining term. Rounded amounts.
Include the debt left behind
Cash-flow relief is the difference in what you pay each month. Real loan-cost savings also account for the remaining debt. Otherwise, a loan that pays principal down more slowly can look deceptively attractive.
Equivalent to cash paid less the difference in remaining debt. Financed switching costs are included once.
Be careful about restarting the clock
In the same example, restarting the new loan over 30 years lowers the payment to about $2,998. That is around $730 less each month. But if both loans run to repayment at those rates, the longer loan costs roughly $187,503 more after switching costs.
They may suit a cash-flow need. The point is to see the price of that flexibility rather than treating all repayment relief as money saved.
Check when the costs are recovered
BrickOutlook finds the first month that accumulated interest and fee savings cover switching costs. It also flags if the saving reverses later, which can happen after extending the term. Choose a comparison period that matches how long you expect to keep the loan.
Keep offset and interest-only assumptions consistent across quotes. Tax treatment is outside this comparison, so use your adviser’s guidance if it affects your decision.
Sources: Moneysmart switching home loans and mortgage switching calculator assumptions.