When refinancing makes sense, and when it doesn't
There are five signs it's probably worth looking into: your rate sits more than 0.5% above what's available in the market, your fixed rate period is about to expire, your property's value has increased significantly since you bought (opening up better LVR tiers), your needs or circumstances have changed, or the features you actually want, offset, redraw, a different structure, aren't available through your current lender.
It's just as important to know when it doesn't make sense. If your current rate is already competitive, if you're deep into a fixed term with a break cost that would swallow the saving, or if you're planning to sell or pay off the loan very soon, the switching costs may simply not be worth it. The biggest risk in refinancing is acting on a vibe rather than on the numbers, so the decision should always come down to an actual calculation, not a feeling that you're probably paying too much.
Working out your break-even point
The formula is straightforward: break-even in months equals your total switching cost divided by your monthly saving. As an example, refinancing from a current rate of 7.00% to a new rate of 6.20% on a $600,000 loan with 25 years remaining produces a break-even point of around 2.9 months, meaning the switching costs are recovered in under three months, and everything after that is genuine saving.
What refinancing actually means
Refinancing means replacing your current home loan with a new one, either with your existing lender or a new one. There are two broad types: a straightforward rate and term refinance, where you're simply moving to a better deal, and a cash-out refinance, where you also draw additional funds, for renovations, debt consolidation, or an investment deposit, on top of paying out the existing loan.
The common reasons Australians refinance
People refinance to get a lower interest rate, most obviously, but also to consolidate other debts into the mortgage at a lower blended rate, to access equity for a renovation or investment purchase, to switch from a lender whose service or features have become frustrating, to change loan structure (for example moving from interest-only to principal and interest, or adding an offset account), to come off a fixed rate at the right time rather than rolling onto an uncompetitive standard variable rate, or simply because their circumstances have changed and their current loan no longer fits.
Refinancing step by step
Step one: review your current loan. Pull your most recent statement and note your current rate, remaining loan term, outstanding balance, and any fees or features you're currently paying for. This is your baseline for comparison.
Step two: know your equity position. Work out your loan-to-value ratio and get a sense of your property's current value, since this determines what LVR tier you qualify for and whether LMI comes into play. As an example, a property worth $850,000 with an outstanding loan of $450,000 sits at 53% LVR, giving accessible equity to the 80% threshold of around $230,000.
Step three: compare your options. Look across fixed and variable rates, the loan features that matter to you (offset accounts, redraw, flexibility), and don't rely on the headline rate alone, the comparison rate gives a fuller picture of a loan's real cost, though it has its own limitations worth understanding.
Step four: calculate your break-even point. Using the formula above, work out how many months it'll take to recover your switching costs. In our example, moving from 7.00% to 6.20% on a $600,000 loan with 25 years remaining breaks even in about 2.9 months.
Step five: apply with your new lender. Gather the required documents (identification, income evidence, statements on existing debts, your current loan statement) and expect an assessment turnaround of roughly three to ten business days.
Step six: settlement and discharge. Your new lender pays out your existing loan, your old lender processes the discharge, security is transferred, and your new loan begins. Your first repayment is typically due around 30 days after settlement.
Discharge fees and break costs to watch for
Refinancing isn't free, and it's worth knowing the typical costs upfront. A discharge fee from your existing lender usually runs $150 to $500. Application or setup fees with the new lender range from $0 to $600. Legal or settlement fees typically run $200 to $400. And if you're refinancing out of a fixed rate early, a break cost may apply, and this is the one that can genuinely vary from nothing at all to $50,000 or more, depending on how far rates have moved since you fixed and how much time is left on the term. Always contact your current lender and request an exact break cost figure before signing anything with a new lender. On the upside, some new lenders offer cashback incentives to refinance, sometimes worth $4,000 or more, which can offset some of the switching costs.
How a mortgage broker makes refinancing easier
A broker gives you access to more than 50 lenders rather than negotiating with just your current one or shopping around yourself, provides genuine negotiation leverage by comparing offers across the panel, protects your credit file by managing the application process rather than you generating multiple separate enquiries, and costs you nothing directly, since the service is paid for by the lender at settlement.
Mistakes to avoid
- Only comparing interest rates. Fees, features and the comparison rate all matter too, a slightly higher headline rate with the right features can still be the better deal.
- Not checking break costs first. If you're on a fixed rate, find out the exact break cost before you commit to anything with a new lender, this single number can make or break the whole decision.
- Applying directly with multiple lenders. Each direct application generates its own credit enquiry, and several in a short window can hurt your score and your prospects. A broker avoids this by making one enquiry on your behalf.
- Resetting to a full 30-year term. If you're five years into your current loan and refinance into a fresh 30-year term, you can end up paying more in total interest over time despite a lower rate. Match your new loan term to your remaining original term where possible.
- Changing jobs right before applying. Lenders want to see income stability, so a recent job change can complicate your application or reduce what you can borrow. Time it carefully if you can.
- Waiting too long after your fixed rate expires. Once your fixed term ends, you roll onto the lender's standard variable rate by default, which is rarely their most competitive rate. Act around 60 days before your fixed rate expires rather than after the fact.
The right approach: use a broker to compare the market before lodging anything, confirm your break costs upfront if you're on a fixed rate, match your new loan term to your remaining original term, and move roughly 60 days before your fixed rate expires.
Book a free home loan health check
A 0.5% rate difference on a $600,000 loan saves approximately $160,000 over 25 years. If it's been a while since you checked, it's worth finding out where you actually stand.
Frequently asked questions
How often can I refinance? There's no legal limit on how often you can refinance, though each switch carries its own costs, so it's worth making sure the saving genuinely outweighs them each time.
Does refinancing affect my credit score? A refinance application generates a credit enquiry, which can cause a small, temporary dip. Using a broker to manage a single application, rather than approaching several lenders yourself, minimises this impact.
Do I need a new property valuation to refinance? Usually, yes. The new lender will typically require a valuation to confirm your property's current value and your resulting LVR.
Can I refinance with less than 20% equity? Yes, though you may need to pay LMI again if you're above 80% LVR with the new lender, which is a cost worth weighing against the rate saving.
How long does refinancing take? Typically two to four weeks from application to settlement, though this can vary depending on the lender and how quickly documentation is provided.
Can I access equity when I refinance? Yes, a cash-out refinance lets you draw additional funds on top of paying out your existing loan, commonly used for renovations, debt consolidation, or an investment property deposit.
Call us on 0483 980 002 or book a free home loan health check online.
