When Does Refinancing Actually Make Sense?

Refinancing gets talked about a lot — and for good reason. Australians collectively leave billions of dollars on the table every year by staying on uncompetitive home loan rates. But refinancing isn’t automatically the right move. It depends on your numbers, your timing, and your goals.

The Core Question: Are You on a Competitive Rate?

Start here. Pull out your latest loan statement and find your current interest rate. Then compare it against what’s available in the market today for your loan type, LVR, and borrower profile.

If your rate is more than 0.5% above what comparable loans are offering, there’s a strong case for at least exploring a switch. On a $600,000 loan, 0.5% equates to roughly $3,000 per year — or $250 a month. On a $800,000 loan, that same difference is $4,000 per year. These aren’t rounding errors; they’re real savings.

The loyalty tax is real. Lenders routinely offer sharper rates to new customers than they pass on to existing ones. If you’ve been with your lender for 3+ years without ever renegotiating, there’s a reasonable chance you’re overpaying.

Factor In the Costs

Refinancing isn’t free. Common costs include:

• Discharge fee: Charged by your current lender to close the loan — typically $150–$400.
• Application/establishment fee: Some new lenders charge these, though many waive them.
• Valuation fee: The new lender may want a fresh property valuation — $200–$600 depending on the property.
• Legal/settlement fees: Often $200–$400.
• Break costs: If you’re on a fixed rate, this can be the big one — potentially thousands of dollars depending on how much rates have moved since you fixed. Always get a break cost estimate before proceeding.

Total costs for a straightforward variable-to-variable refinance can be as low as $500–$1,500. With a fixed-rate break, it can be significantly more.

The Break-Even Calculation

Once you know your monthly saving and your total switching costs, the break-even point is simple: total costs ÷ monthly saving = months to break even.

If refinancing costs you $2,000 and saves you $300/month, you break even in under 7 months. From month 8 onwards, you’re ahead. If you’re planning to stay in the property (or keep the loan) for years, that’s a straightforward win.

If you’re planning to sell in 12 months, the maths looks different. Make sure your time horizon is part of the calculation.

Cashback Offers: Not Always What They Seem

Many lenders offer cashback incentives to attract refinancers — sometimes $2,000 to $4,000. These can be genuinely useful, but don’t let the cashback distract from the rate. A $3,000 cashback paired with a rate 0.3% higher than the best available option will cost you more over 2–3 years than it saves upfront.

Treat cashback offers as a tie-breaker between otherwise comparable options, not as a reason to choose a lender.

Beyond the Rate: Other Good Reasons to Refinance

Rate isn’t the only reason to switch. Other valid motivations include:

• Accessing equity you’ve built up — for renovations, investment, or other goals
• Consolidating higher-interest debts into your mortgage (with care — this extends the term on that debt)
• Switching from principal & interest to interest-only, or vice versa
• Getting an offset account your current loan doesn’t have
• Removing a borrower (e.g., after a relationship change)

Common Refinancing Mistakes

The most expensive mistake is refinancing to a lower rate but resetting your loan term back to 30 years in the process. If you’re 7 years into a 30-year loan, refinancing to another 30-year term at a lower rate may reduce your repayments but significantly increase the total interest you pay over the life of the loan. Keep the term consistent (or shorter) when you can.

Another common mistake is applying to multiple lenders simultaneously. Each hard credit enquiry leaves a mark on your credit file, and multiple enquiries in a short period can affect your credit score. Work with a broker who can identify the right lender before submitting a formal application.

How Often Should You Review?

A good rule of thumb is to review your home loan every 12–24 months, or whenever there’s a significant rate movement in the market. You don’t need to refinance every time you review — but being informed about your options means you’re never unknowingly overpaying for years on end.

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This article contains general information only and does not constitute financial or credit advice. Please speak with a qualified mortgage broker to discuss your individual circumstances.