Refinancing a Home Loan for Lower Monthly Payments

Overview

When a fixed home loan expires, the jump in repayments can be significant. For many borrowers, refinancing can moderate that increase and restore budgeting confidence. This case study shows how a structured approach and current income evidence can materially improve outcomes—especially for self-employed borrowers.

Client Background and Initial Pressure

Ian and Olivia, in their late 40s with a young family, had recently completed renovations on their Leichhardt home in Sydney’s Inner West. Their total mortgage balance was $1,650,000 across three loans. One portion had been fixed for three years at 1.89%, but when that fixed period expired in January 2023, it reverted to 5.29%. On that segment alone, monthly repayments rose from $3,168 to $4,826—an increase of $1,658 per month.

At the same time, a construction facility reverted from interest-only to principal and interest once the occupancy certificate was issued, adding further repayment pressure. Ian and Olivia wanted to refinance before the increase placed unnecessary strain on their household budget. Their existing lender’s offer wasn’t strong enough to justify staying.

Not Just a Pricing Exercise: The Servicing Challenge

Ian’s business had been affected during COVID, and the earlier financials still reflected that period. On a traditional two-year assessment, their borrowing capacity appeared much lower than the actual debt they needed to refinance. Existing tax returns and income evidence suggested only around $1,200,000 of borrowing capacity—well short of the $1,650,000 required.

Historic financials no longer reflected the current business position. Revenues and profitability had already recovered, but the standard lender view lagged behind reality. This is a common refinance issue for self-employed borrowers.

Objectives and Preferred Structure

The goal was to reduce repayment pressure and ensure the refinance matched Ian and Olivia’s preferences:

• Fix 70% of the debt for two years
• Keep 30% variable for flexibility

Lender choice needed to work on servicing and also on product structure, pricing, fees, and turnaround times.

Approach: Presenting Current Income Evidence

We met at their Leichhardt home, outlined the refinance process, and gathered documents to support a stronger current-income assessment. The key was moving beyond the default two-year historic view and presenting the more accurate current business picture.

Evidence That Improved Borrowing Capacity

Using Ian’s company draft FY2022 tax returns, the accountant’s signed confirmation they would be lodged as prepared, and the first two quarters of FY2023 BAS, it became clear the business had recovered strongly. Core revenue and profit had increased by around 40%, with profitability above pre-COVID levels. The traditional assessment method was no longer a true reflection of their actual servicing position.

Lender Fit Matters

Some lenders would continue to assess too conservatively. Others were prepared to use more current business evidence, including BAS and accountant-supported draft financials, to form a more realistic view.

Recommended Lender: St George Bank

After comparing relevant home loan refinance options, we recommended St George Bank based on:

• Favourable assessment of current self-employed income evidence
• Competitive fixed and variable pricing
• A product structure matching the 70% fixed / 30% variable split
• Acceptable turnaround times
• Strong overall fit across rates, fees, and lender comfort

A rate lock was offered and accepted, securing the 5.59% fixed rate they wanted.

A Non-Linear Path: Macquarie to St George

The loan was originally submitted to Macquarie Bank, which had the lowest two-year fixed rate at 5.29% at the time. Formal approval was achieved there. After the February RBA announcement, Macquarie’s fixed rate increased to 5.79%, materially changing the outcome’s attractiveness.

Delays in obtaining supporting accountant documentation and lodged BAS also affected timing. Once pricing moved, Ian and Olivia chose not to proceed with Macquarie and instead moved to St George, which produced the better overall result at that point.

This underscores that refinance strategy isn’t just about the first lender that says yes. Timing, policy, pricing movement, and document readiness can all materially affect the end result.

Final Outcome: Structure and Repayments

We secured a refinance of the full $1,650,000 loan amount, structured as:

• 70% fixed for two years (rate-locked at 5.59%)
• 30% variable

This brought repayments back to a level they felt more comfortable with after the sharp jump caused by the end of the fixed period and broader rate rises. It also delivered a structure that balanced certainty and flexibility—without settling for revert pricing or an uncompetitive offer from the existing lender.

Lessons: Refinancing Is More Than Chasing a Lower Rate

It is about:

• Understanding what has changed in the borrower’s circumstances
• Identifying whether current income evidence tells a stronger story than historic returns
• Matching the scenario to lenders that will actually assess it properly
• Moving quickly enough to protect the outcome when pricing changes
• Building a loan structure that suits the borrower, not just the bank

On paper, Ian and Olivia’s refinance looked difficult because of older self‑employed financials. In reality, with the right evidence and lender selection, the deal was very workable.

The Value of Proper Refinance Advice

If your rate has rolled over, your repayments have jumped, or your current lender’s offer isn’t good enough, it makes sense to assess the structure properly before deciding what to do next. If you’re considering how to reduce mortgage repayments, a tailored refinance strategy can help you compare options and choose the right path.

Speak with Evolve Lending & Finance for clearer advice and a more considered refinance strategy.

To protect the privacy of the individuals involved, the names used in this case study have been changed. The case study is based on real-life scenarios and events, but all names have been substituted with fictitious ones to ensure the confidentiality of the parties.

Q&A

What triggered Ian and Olivia’s need to refinance, and how much did their repayments rise?

Short answer: Their fixed-rate period on part of their mortgage expired, causing that portion to roll from 1.89% to 5.29% in January 2023. On that segment alone, monthly repayments jumped from $3,168 to $4,826—an increase of $1,658 per month. At the same time, a construction loan switched from interest-only to principal-and-interest after the occupancy certificate was issued, adding further repayment pressure. Refinancing was pursued to moderate the overall increase and stabilise their budget.

Why did their initial borrowing capacity look too low, and how was that addressed?

Short answer: Standard lender assessments focused on older, COVID-affected financials, which understated their current income and suggested only about $1,200,000 of borrowing capacity—short of the $1,650,000 they needed to refinance. By gathering more current evidence—draft FY2022 company tax returns (with the accountant’s signed confirmation they would be lodged as prepared) and the first two quarters of FY2023 BAS—it became clear the business had recovered strongly, with core revenue and profit up roughly 40% and profitability above pre-COVID levels. This allowed lenders open to current-year evidence to assess servicing more accurately.

Why did the recommended lender change from Macquarie to St George, and what role did a rate lock play?

Short answer: Macquarie initially had the lowest two-year fixed rate (5.29%) and even issued formal approval. After the February RBA announcement, however, Macquarie’s fixed rate rose to 5.79%, reducing the appeal of that option—especially amid document-related delays. St George offered a better overall fit at that point: competitive pricing, a suitable product structure, acceptable turnaround times, and a favourable view of the self-employed income evidence. Importantly, St George provided a rate lock that secured the 5.59% fixed rate Ian and Olivia wanted, protecting them from further pricing movements before settlement.

Why structure the refinance as 70% fixed and 30% variable?

Short answer: The 70% fixed portion provided two years of repayment certainty to reduce the shock from rising rates, while the 30% variable portion preserved flexibility—for example, to make extra repayments or adjust more easily if circumstances changed. This blend aligned with their preferences rather than defaulting to a lender’s revert rate or a one-size-fits-all structure.

What are the key takeaways for other borrowers facing a fixed-rate rollover or an uncompetitive lender offer?

Short answer:

• Don’t rely solely on historic financials—if your income has recovered, gather current evidence (e.g., BAS, draft financials backed by your accountant) to present a truer servicing picture.
• Match your scenario to lenders that will properly assess self-employed income and offer the structure you want.
• Move quickly; pricing can change, and document readiness affects timing. Consider a rate lock to protect your chosen fixed rate.
• Build a loan structure that balances certainty and flexibility for your circumstances.

Engaging a broker like Evolve Lending & Finance can help you compare options, craft the right structure, and navigate timing and policy differences across lenders.