Remortgage Risk Calculator
Monthly Payment Difference
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Total Fees
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Break-even Period
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Interest Savings
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Interest Rate Risk
Variable rates can spike, leading to increased monthly payments. Model a 1-2% rate increase scenario.
Equity Risk
High LTV ratios (above 80%) increase default risk. Aim to maintain at least 20% equity.
Fee Risk
Exit fees, valuation fees, and establishment fees can erode savings. Check all costs before proceeding.
Market Volatility
Property values can fall, especially in volatile markets. Ensure you have adequate equity cushion.
Quick Takeaways
- Remortgaging can lower payments, but it may also raise your interest rate or add costly fees.
- Higher loan‑to‑value ratios shrink your equity cushion and increase default risk.
- Variable rates can spike when market rates rise, hurting cash flow.
- Early repayment penalties and valuation fees can eat into any savings you expect.
- Check your credit score and run the numbers before you sign - a simple spreadsheet can save you thousands.
What exactly is a remortgage?
When you remortgage is the process of replacing an existing home loan with a new one, often to secure a better rate or release equity, you’re essentially taking out a fresh loan on the same property. The new loan pays off the old one, and you start a new repayment schedule. In Australia, the average homeowner remortgages every 5‑7 years to chase lower rates or to fund renovations.
Why people consider a remortgage
Most borrowers chase two main goals: lower monthly outgoings or a larger cash lump to remodel, consolidate debt, or invest. The allure of a lower interest rate can look great on paper, especially when the Reserve Bank of Australia (RBA) announces a rate cut. But the decision should be weighed against the hidden costs and market uncertainties that come with any new loan.
The big risk buckets you need to understand
Below is a plain‑English rundown of the risks that almost always show up when you change your mortgage.
1. Interest‑rate risk
Even if you lock in a fixed rate, most Australian lenders embed a margin that can rise if the RBA hikes again. If you opt for a variable rate a loan where the interest percentage can change as market rates move, your repayments could jump 1‑3% overnight. That can turn a comfortable $2,200 mortgage into $2,800 in a few months.
2. Higher loan‑to‑value (LTV) and equity loss
When you pull out extra cash, the LTV climbs. An LTV above 80% usually triggers higher interest margins and stricter lender criteria. Losing equity means you have less of a buffer if property prices dip. In Sydney, median house prices fell 9% in 2023, leaving many owners with negative equity after aggressive remortgages.
3. Fees that eat your savings
Remortgages aren’t free. Most lenders charge an exit fee a charge for paying off the existing loan early (often 0.5‑1% of the loan balance), a valuation fee (around $300‑$600), and sometimes a loan‑establishment fee of $500‑$1,000. Those costs can wipe out the interest‑rate gain for the first 12‑18 months.
4. Longer repayment term, higher total interest
If you extend the loan from 20 to 30 years to lower your monthly payment, you’ll pay substantially more interest over the life of the loan. A $600,000 loan at 4% over 30years costs about $530,000 in interest, versus $340,000 over 20years. The monthly relief feels great, but the long‑run cost can be a hidden trap.
5. Credit‑score impact
Applying for a new mortgage triggers a hard credit inquiry, which can shave a few points off your credit score a numeric representation of your creditworthiness used by lenders. If you plan to apply for another loan (car, personal) soon, that dip could affect approval or rates.
6. Property‑value volatility
Australian property markets can swing with economic cycles. If you remortgage at a peak and the market corrects, you might find yourself owing more than your home is worth. This scenario limits your ability to move or refinance again without additional cash.
7. Variable‑rate uncertainty
Even if you start with a fixed rate, many borrowers switch to a variable portion after the fixed term ends. That transition can surprise you with higher payments if the RBA raises rates. It’s vital to model both scenarios before signing.
8. Potential for negative equity if you over‑draw
Pulling large cash sums for renovations or debt consolidation can push your LTV into risky territory. If the renovation doesn’t add value, you’ve essentially borrowed against non‑existent equity, increasing default risk.
How to evaluate whether a remortgage makes sense for you
Use this quick checklist before you talk to a loan officer:
- Calculate the exact break‑even point: total fees ÷ monthly savings.
- Run the numbers for two scenarios - fixed vs variable - using the latest RBA forecast.
- Check your credit score. If it’s below 700, you might not qualify for the best rates.
- Confirm the new LTV. Stay below 80% to avoid higher risk premiums.
- Ask the lender for a detailed fee schedule - any hidden costs can be negotiated.
- Consider the impact on your long‑term financial goals: retirement savings, children's education, etc.
If the break‑even point is longer than the time you plan to stay in the house, walk away.
Common pitfalls and how to avoid them
- Chasing the lowest headline rate without looking at the total cost of the loan.
- Assuming a variable rate will stay low - always model a 1‑2% rise.
- Ignoring the exit fee on your current loan; sometimes it’s cheaper to stay put.
- Over‑borrowing against equity for non‑essential purchases.
- Not reading the fine print on early‑repayment penalties after the fixed term.
Fixed vs Variable Rate: Risk Comparison
| Risk Factor | Fixed‑Rate | Variable‑Rate |
|---|---|---|
| Interest‑rate volatility | Locked for term; no surprise hikes. | Subject to market moves; payments can jump. |
| Initial rate level | Usually higher than variable start. | Often lower, but may rise quickly. |
| Early‑repayment penalties | Higher penalties if you exit early. | Lower or none during the term. |
| Long‑term cost certainty | Predictable total interest. | Uncertain; depends on future rates. |
| Suitability for budgeting | Excellent - same payment each month. | Requires flexibility; payments can vary. |
Next steps if you decide to move forward
1. Gather recent payslips, tax returns, and a copy of your current mortgage statement.
2. Use an online remortgage calculator - enter loan amount, interest rate, fees, and term to see the true monthly cost.
3. Contact three lenders for pre‑approval quotes. Compare the fees any upfront or ongoing charges associated with the loan as well as the interest margin.
4. Request a written breakdown of the exit fee from your existing lender; sometimes they’ll waive it to keep your business.
5. Once you choose a lender, read the loan contract carefully. Highlight any clause about “early repayment” and “rate review”. If something feels vague, ask for clarification before signing.
When a remortgage might be the wrong move
If you’re planning to sell within the next two years, the upfront fees will likely outweigh any rate savings. Similarly, if your credit score slipped below 650 after a recent job change, you could end up with a higher rate than your current loan.
For renters or those who haven’t built at least 20% equity, staying put and paying down the principal might be safer than taking on additional debt.
Frequently Asked Questions
Can I remortgage with the same lender?
Yes, many banks let you switch to a new product on the same loan. They may waive some fees to keep you as a customer, but you’ll still face an exit fee on the original contract if it’s still within a break‑cost period.
How much equity should I keep after a remortgage?
Aim for at least 20% equity. That keeps your LTV around 80% and protects you from higher risk premiums and negative‑equity scenarios if the market dips.
What’s the typical break‑even period for a remortgage?
Break‑even varies, but most Australians see it between 12 and 24 months. Calculate it by adding all fees and dividing by the monthly cash‑flow gain.
Will a remortgage affect my existing mortgage insurance?
If you have Lender’s Mortgage Insurance (LMI), the new loan may trigger a fresh LMI assessment. Higher LTVs usually mean a higher premium.
Is it worth refinancing to a fixed rate in a rising market?
Locking a fixed rate can shield you from rate hikes, but you may pay a higher margin. If you expect rates to rise sharply, the security often outweighs the extra cost.