When Does Refinancing Your Home Loan Make Sense?

Refinancing can be a smart financial move in several situations, but it is not right for everyone. Here are the most common scenarios where refinancing may be worth considering:

You can get a significantly lower interest rate Even a 0.5% reduction in your interest rate can save thousands of dollars over the life of your loan. If rates have dropped since you took out your mortgage, or if your financial situation has improved and you now qualify for a better rate, refinancing may be worth exploring.

Your fixed rate period is ending If you are on a fixed rate home loan that is about to expire, you may be rolled onto a higher variable rate automatically. This is often a good time to shop around and refinance to a more competitive rate before that happens.

You want to access equity If your property has increased in value, you may have built up equity in your home. Refinancing can allow you to access some of that equity as cash, which some homeowners use for renovations, investment, or other large expenses.

Use our Home Equity Calculator to find out how much equity you have built up.

You want to consolidate debt Some homeowners refinance to roll higher-interest debts such as personal loans or credit cards into their home loan. This can reduce your overall monthly repayments, though it means paying off that debt over a longer period.

You want to switch loan features Refinancing can also let you move to a loan with better features, such as an offset account, redraw facility, or the ability to make extra repayments without penalty.

Refinancing Costs to Consider

Before you decide to refinance, it is important to understand the costs involved. These can vary depending on your lender and loan type.

Discharge fee Most lenders charge a fee to close out your existing loan when you leave. This is sometimes called an exit fee or discharge fee and typically ranges from $150 to $400 in Australia.

Break costs If you are on a fixed rate loan and want to refinance before the fixed period ends, your lender may charge a break cost. This can be significant depending on how much time is left on your fixed term and current interest rates. Always check this before refinancing a fixed rate loan.

Application or establishment fee Your new lender may charge a fee to set up your new loan. Some lenders waive this fee as an incentive to switch.

Lenders Mortgage Insurance (LMI) If your loan-to-value ratio (LVR) is above 80%, you may need to pay LMI again when refinancing. This can be a substantial cost that offsets potential savings.

Valuation fee Your new lender will likely require a property valuation to assess how much your home is worth. This usually costs between $200 and $600.

This calculator allows you to enter your total refinancing costs so you can see your true break-even point — the point at which your monthly savings outweigh the upfront costs.

What is the Break-Even Point When Refinancing?

The break-even point is how long it will take for your monthly savings from refinancing to cover the upfront costs of switching loans.

For example, if refinancing costs you $2,000 in fees and saves you $200 per month, your break-even point is 10 months. After that, you are in profit.

If you plan to sell your home or pay off your loan before you reach the break-even point, refinancing may not be worth it. This calculator shows your estimated break-even point so you can make an informed decision.

Frequently asked questions

How do I know if I should refinance my home loan?

A good starting point is to compare your current interest rate with what other lenders are offering. If you can find a rate that is at least 0.5% lower and the refinancing costs are manageable, it may be worth considering. Use this calculator to check your break-even point before deciding.

How often can I refinance my home loan in Australia?

There is no legal limit on how often you can refinance in Australia. However, refinancing too frequently can be costly due to discharge fees, application fees, and potential LMI. It is generally recommended to refinance only when there is a meaningful financial benefit.

Will refinancing affect my credit score?

Yes, applying for a new home loan involves a credit check, which can temporarily affect your credit score. Multiple applications in a short period can have a greater impact. It is best to compare your options carefully before formally applying.

How long does it take to refinance a home loan in Australia?

The refinancing process typically takes between two and six weeks from application to settlement. Some lenders offer faster turnaround times, especially if your documentation is in order.

What is a comparison rate and why does it matter?

A comparison rate combines the interest rate with most fees and charges into a single percentage, making it easier to compare the true cost of different loans. When comparing refinancing options, always look at the comparison rate rather than the advertised rate alone.

Can I refinance to get a lower repayment and also pay off my loan faster?

These two goals can work against each other. A lower repayment usually means a longer loan term, which increases total interest. To pay off your loan faster, consider keeping your repayments at the same level even after refinancing to a lower rate — or making additional repayments when possible.

Try our Extra Mortgage Payments Calculator to see how additional repayments can shorten your loan term

Does this calculator include LMI costs?

This calculator does not automatically calculate LMI. If you believe LMI may apply to your refinance, include it in the refinancing costs field to get a more accurate break-even estimate.

Is It Time to Review Your Home Loan?

With interest rates changing regularly in Australia, it pays to review your home loan at least once a year. Even if you refinanced recently, a better deal may now be available.

Use this calculator as a starting point to see whether the numbers stack up, then speak with a mortgage broker or your lender for a personalised assessment.

Use our Mortgage Calculator to compare repayments on different loan amounts and rates.