Refinancing isn’t right for everyone, and it’s rarely free. The key question is whether the long‑term interest savings will outweigh the fees you’ll pay to make the switch.
You can generally refinance anytime, but the financial case is strongest when you’ve had your current loan for a few years, your fixed rate is about to expire, or the market has moved enough that a new loan with a genuinely lower rate is available. Before you jump, you need to check what you’ll pay to leave your current loan and what you’ll pay to set up a new one.
What might trigger a refinance?
People often start looking at refinancing for a handful of reasons. You might recognise one of these scenarios.
- Your fixed‑rate period is ending and the revert rate your lender offers is noticeably higher than what’s on the market. This is a common trigger, because it forces you to compare your lender’s ongoing offer with what other lenders will give a new customer.
- You’ve spotted a loan with an interest rate that’s at least 0.5% lower than what you’re paying now. Even a small percentage gap can add up to thousands of dollars over time, but you’ll need to check the fees before you can be sure it’s worth it.
- You’ve built up more equity in your home. If you’ve been paying down the loan or your property value has risen, you might now have at least 20% equity. This can help you avoid Lenders Mortgage Insurance on the new loan and give you more bargaining power with lenders.
- Your financial circumstances have changed — perhaps your income is steadier than it was when you took out the loan, or you want different features from a loan, such as an offset account or the ability to make extra repayments without a penalty.
The real costs you need to check
Before you compare rates, you need to know what leaving your current loan will cost. These are the most common fees that can eat into any savings.
- Break fee on a fixed loan. If you’re coming out of a fixed rate early, a break cost may apply. It’s calculated by the lender and it can be significant, especially if interest rates have dropped since you locked in.
- Discharge fee (termination fee). Most lenders charge a fee to close your loan and take their name off the title. This is separate from any break cost.
- Application or establishment fee on the new loan. You’ll often pay an upfront fee when you apply for a new loan, even if the advertised rate looks good.
- Switching fee. If you stay with the same lender but move to a different product, you may still pay a switching fee.
- Lenders Mortgage Insurance (LMI). If your equity is below 20%, you might have to pay LMI again on the new loan. You could also ask your current lender about a partial refund of the LMI you paid on the original loan, though it’s not guaranteed.
- Stamp duty. Some states may charge stamp duty when you refinance. It’s worth checking with the new lender whether this applies in your case.
- Ongoing fees. Don’t just look at the upfront cost. Check whether the new loan has monthly or annual service fees that might add up over time.
When you compare loans, look at the comparison rate as well as the headline interest rate. The comparison rate is a single figure that bundles the interest rate and most standard fees, which can help you see the real cost of the loan at a glance. Comparison rates, however, don’t capture break fees or stamp duty, so you’ll still need to factor those in separately.
How to work out if you’ll save money
Once you’ve got a shortlist of potential loans and a clear picture of the switching costs, a simple cost–benefit check can help you decide.
Step one: work out the total fees you’d pay to leave your current loan and set up the new one. That’s your upfront switching cost.
Step two: estimate your monthly repayment savings with the new loan. If the new rate is lower, your monthly payment should drop. Be careful with loan term — if the new loan stretches your remaining term out again, you might end up paying more total interest even though the monthly amount is smaller.
Step three: work out your break‑even point. Divide the total switching cost by the monthly saving. The result tells you roughly how many months it will take before the savings start working in your favour. If you’re planning to stay in the home for longer than that, refinancing may be worth considering. If you’re likely to sell or move before then, the costs might not be recovered.
Example: Suppose your total switching costs add up to $1,200 and the new loan saves you $200 a month. You’d break even around six months. If you’ll be in the loan beyond that point, the savings start to work for you.
Simon and Tiana’s real‑world case helps put the numbers in perspective. Their fixed rate was ending soon, and they found two loans with lower rates. One had a $600 application fee, the other $300. They chose the loan with the lower interest rate — even though its upfront fee was higher — because over their 25‑year loan it would save them $84,040 (about $280 a month). Their switching costs were recovered in five months.
Before you commit, talk to your current lender
Don’t skip this step. Ring your lender, tell them you’re looking at other loans, and ask if they can offer you a better rate. If you’ve got at least 20% equity and a good credit history, you have more negotiating power. Your lender might offer a rate reduction to keep your business, which would save you all the switching costs. Compare what they offer against the new loans you’re considering before you decide.
Where to find help without the pressure
This article covers general information to help you understand the refinancing decision, but it doesn’t take your personal circumstances into account. OZ Home Loan provides general Australian home loan information for multilingual borrowers and can connect you with further resources, but it is not a lender, doesn’t promise approval, rates or savings, and does not give personal financial advice. If you need guidance tailored to your situation, a licensed mortgage broker or financial adviser can look at your position in detail. When you use comparison websites, keep in mind they are businesses and may earn money through promoted links — they may not show all options.
Refinancing is a numbers game, not a guessing game. Use the Moneysmart mortgage switching calculator to run your own break‑even calculation with real rates and fees. That way, you’ll know if the switch really adds up before you sign anything.