Refinancing is worth it when the savings from a lower rate or better loan features outweigh the switching costs within a reasonable break-even period — commonly a matter of months, not years, on a typical loan balance. It rarely makes sense if you're planning to sell or pay off the loan very soon, or if you're on a fixed rate with a large break cost.
When Refinancing Tends to Make Sense
- Your current rate is no longer competitive — lenders often price new customers more aggressively than existing ones ("loyalty tax"), so an existing loan can drift above market over time.
- Your equity position has improved — if your loan-to-value ratio (LVR) has dropped below 80% through repayments or value growth, you may qualify for a better rate tier or avoid LMI you previously paid.
- You want to consolidate debt — rolling higher-interest personal loans or credit cards into your mortgage can lower your total monthly repayments, though it can increase total interest paid over time if not managed carefully.
- You need different loan features — an offset account, redraw facility, or the ability to make extra repayments without penalty.
- You want to access equity — a cash-out refinance for renovations, an investment property deposit, or other purposes.
The Real Costs of Refinancing
| Cost | Typical range / notes |
|---|---|
| Discharge fee (current lender) | A few hundred dollars |
| New loan application/settlement fee | Varies by lender, sometimes waived as a promotion |
| Government registration fees | State-based, for registering the new mortgage |
| Lenders Mortgage Insurance | Applies again if your new LVR is above 80% |
| Fixed rate break cost | Can be substantial — calculated by your current lender based on rate movements and remaining term |
How to Calculate Your Break-Even Point
Add up all refinancing costs, then divide by your estimated monthly repayment saving:
Break-even (months) = Total refinancing costs ÷ Monthly repayment saving
If the result is a small number of months relative to how long you intend to keep the loan, refinancing is generally worth pursuing. If you expect to sell or pay off the property well before that point, the switching costs may not be recovered.
Questions to Ask Before You Switch
- Is my current loan fixed, variable, or split — and are there break costs?
- What is my current LVR, and does it put me in a better pricing tier elsewhere?
- Am I comparing the comparison rate, not just the advertised headline rate?
- Does the new loan have the features I actually use (offset, redraw, extra repayments)?
- Have I asked my current lender for a rate review before switching elsewhere?
This is general information only, not personal financial advice. Refinancing costs, break fees and LMI rules vary by lender and by your specific loan. For advice tailored to your situation, book a free consultation with Bala at BAMALoans.com.au.
Frequently Asked Questions
How much does it cost to refinance a home loan in Australia?
Typical costs include a discharge fee from your current lender, a new loan application or settlement fee, potential LMI if your equity is below 20%, and government mortgage registration fees. Break costs apply if leaving a fixed rate early.
How do I calculate my refinancing break-even point?
Add up all the costs to refinance, then divide by your estimated monthly repayment saving. The result is the number of months before the switch pays for itself.
Is it worth refinancing for a small rate difference?
It depends on your loan balance, remaining term, and refinancing costs. On a large balance even a modest rate cut can be meaningful; on a small balance or short remaining term, costs may outweigh the benefit.
Can I refinance to access equity in my home?
Yes — a cash-out refinance lets you borrow against increased equity for renovations, debt consolidation, or an investment property deposit, subject to the lender's serviceability assessment.
Will refinancing affect my credit score?
Applying for a new loan involves a credit enquiry, which can cause a small, typically temporary dip in your credit score. Comparing options with a broker first can help avoid multiple formal applications.
Related reading: Refinance Mortgage Broker · Borrowing Power Explained · Investment Property Loans