Refinancing in a Rising Rate Environment: 5 Strategies to Lower Your Mortgage Costs
The interest rate environment has shifted dramatically. After three cuts in 2025, the RBA reversed course in February 2026 with a 25 basis point hike to 3.85%. Governor Michele Bullock has signalled another rise could come at the March meeting, and markets are pricing in further increases if oil-driven inflation persists.
For the roughly 3.5 million Australian households with a mortgage, this is a good time to review what you’re paying and whether refinancing makes sense.
Why refinancing matters more now
When rates were falling, many borrowers benefited automatically as variable rates dropped. Now that rates are climbing, the opposite is happening: your repayments are going up.
But here’s the thing most people miss: lenders compete aggressively for refinance business, even when rates are rising. The difference between your current rate and the best available rate could be 0.5% to 1.0% or more, which on a $600,000 mortgage translates to $3,000-$6,000 per year.
5 strategies to consider
1. Rate comparison (the obvious one)
Start by comparing your current interest rate against what’s available. If you’ve been with the same lender for more than two years and haven’t negotiated, you’re almost certainly paying more than you need to.
Many lenders offer their best rates to new customers while existing customers sit on higher “loyalty tax” rates. A mortgage broker can run a comparison across dozens of lenders in minutes.
2. Negotiate before you switch
Before going through the refinance process, call your current lender and ask for a rate reduction. Tell them you’re considering refinancing (and be specific about the rate you’ve been offered elsewhere). Retention teams have authority to discount rates, sometimes matching or beating competitor offers.
If they match, you save without the hassle of switching. If they don’t, you have your answer.
3. Consider a split loan
With rate uncertainty high, a split loan lets you hedge your bets. Fix a portion of your loan to lock in certainty on that amount, and keep the rest variable for flexibility.
For example, on a $600,000 mortgage, you might fix $400,000 at 5.8% for two years and keep $200,000 variable at 6.1%. If rates rise further, the fixed portion protects you. If rates eventually fall, the variable portion benefits.
4. Use an offset account
If your current loan doesn’t have an offset account (or charges extra for one), refinancing to a loan with a free offset can be powerful. Money in your offset account directly reduces the interest you pay, dollar for dollar.
A household that maintains an average of $30,000 in their offset account on a 6% loan saves around $1,800 per year in interest. Over the life of the loan, the savings compound significantly.
5. Reassess your loan structure
Life changes since you took out your mortgage may mean your loan structure no longer suits you. Consider:
- Loan term: Extending your term reduces repayments but costs more in total interest. Shortening it does the opposite. What suits your current cash flow?
- Principal and interest vs interest-only: If you switched to interest-only during tough times, reverting to P&I builds equity faster and costs less over time
- Consolidation: If you have multiple debts (personal loans, car loans, credit cards) at higher rates, consolidating into your mortgage at a lower rate can reduce total interest. But be careful: spreading short-term debt over 25-30 years means you pay more interest overall unless you maintain higher repayments
When refinancing doesn’t make sense
Refinancing isn’t always the right move:
- If you’re on a fixed rate with high break costs. Get a quote for the break cost before proceeding. Sometimes it wipes out the savings
- If you’re close to paying off your mortgage. The costs of switching may not be recovered on a small remaining balance
- If your property value has dropped significantly. If your loan-to-value ratio has increased above 80%, you may need to pay lenders mortgage insurance (LMI) again
The bottom line
In a rising rate environment, doing nothing is the most expensive option. Even if you decide not to refinance, knowing what’s available gives you leverage to negotiate with your current lender.
A mortgage broker can assess your situation, compare options across multiple lenders, and handle the paperwork. Their service is typically free to borrowers (lenders pay the commission).
Frequently Asked Questions
Is it worth refinancing with rates going up?
Often yes. Many borrowers are on rates well above what's available from competing lenders. Even in a rising rate environment, switching to a lower rate can save thousands per year. A mortgage broker can compare your current rate against what's available.
How much does it cost to refinance?
Typical costs include discharge fees ($150-$400), new loan application fees ($0-$600), and potential break costs if you're on a fixed rate. Government fees for switching mortgage registration vary by state. Many lenders offer cashback deals that offset these costs.
How long does refinancing take?
Most refinances take 4-6 weeks from application to settlement. Some lenders offer fast-track processes that can complete in 2-3 weeks.
Should I fix my rate or stay variable?
With rate hikes possible, fixing provides certainty. However, fixed rates have already priced in expected increases. A split loan (part fixed, part variable) can offer a balance of certainty and flexibility.
