Should You Refinance to Another Bank for a Lower Interest Rate?
If your fixed mortgage rate is about to expire, chances are your bank or mortgage adviser has sent you a list of current refix options. Among those offers, you may notice that another bank is advertising a slightly better deal—say, 0.1% lower. It’s natural to wonder: should I refinance to get the cheaper rate? Let’s unpack whether it’s worth it.
What Does a 0.1% Rate Difference Actually Save?
On paper, even a tiny difference in interest rates can add up over time—but not always by much. A 0.1% difference equates to saving $100 per year for every $100,000 of mortgage debt, or roughly $1.92 per week.
If you’ve got a $700,000 mortgage, dropping your rate by 0.1% saves you $700 per year. If the difference is 0.2%, your annual saving would be $1,400. That’s starting to sound worthwhile—until you factor in the costs of refinancing.
The Hidden Costs of Refinancing
Refinancing isn’t free. Just like when you first bought your home, switching banks involves engaging a solicitor to review new mortgage documentation and update the property title. Legal fees typically range from $1,000 to $1,500.
Using the earlier example, a $1,400 annual saving could be entirely wiped out by legal costs, meaning you don’t even break even in the first year. And that’s before you consider the time and effort required to move your banking across to a new institution.
The Race Against Time (and Interest Rate Hikes)
Mortgage rates change frequently, often without warning. Banks avoid announcing upcoming increases to prevent a last-minute flood of applications. Rate changes are typically made effective immediately, often announced late in the day.
If you’re chasing a better rate at another bank, the process can take two to three weeks to complete—between gathering documentation, submitting your application, and waiting for approval. By the time you're ready to lock in the rate, it may have changed or disappeared entirely. That “cheaper” rate might no longer exist by the time you’re ready to sign.
When Refinancing Does Make Sense
So when should you seriously consider switching banks?
The most compelling reason isn’t the interest rate—it’s the cash contribution.
When you join a new bank, you’re often offered a one-time cash incentive. This amount varies but is generally around 0.7% of the loan value. For a $700,000 mortgage, that could mean a $4,900 cash bonus. However, most of these offers come with strings attached: you usually need to stay with the bank for three to four years, or you’ll have to repay the bonus.
If you’ve been with your current lender for longer than that required period, you’re free to move without penalty. This is where refinancing can stack up:
Interest savings (0.2%) = $1,400 per year
Legal costs = approx. $1,500
Cash contribution from new bank = approx. $4,900
Net gain = around $4,800 in the first year alone
In this case, refinancing could be a worthwhile financial move.
What About Staying Put?
If you’re not eligible for a new cash contribution, or the rate difference is marginal (say, 0.1%), it’s often best to stick with your current lender. Most banks will still negotiate on rate if you ask—and a mortgage adviser can often help secure a better deal without the hassle of switching.
You’ll avoid legal fees, admin headaches, and the risk of chasing a rate that might disappear before you secure it.
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