Refinancing your home loan
Refinancing is worth doing when the numbers say so and a waste of effort when they do not. Here is how to tell which one you are looking at, including the costs people forget to count.
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Start with why
“Rates have gone up, should I refinance?” is the wrong opening question, because the answer depends entirely on what you are trying to achieve.
There are really four reasons to refinance, and they lead to different decisions:
- Reduce the interest rate. The obvious one. Worth doing when the saving clears the switching costs within a reasonable period.
- Access equity. Renovating, buying an investment property, or funding something significant. Here the rate matters less than whether the lender will release the equity at all.
- Restructure. Splitting fixed and variable, adding an offset, changing from principal and interest to interest only or back, or separating loans that should never have been combined.
- Escape a lender. Poor service, a product that no longer suits, or a lender whose policy has changed in a way that blocks what you want to do next.
Only the first is really about the rate.
The break-even calculation
The honest test is simple: how long until the savings exceed the cost of moving?
Costs to count:
- Discharge fee from your current lender
- Mortgage registration and discharge fees — state government charges
- Application, settlement or valuation fees at the new lender, where they apply
- Break costs if you are in a fixed rate. These are not a flat fee — they are calculated on the lender’s funding position and can run into thousands. Always ask for the actual figure before deciding.
- Lenders mortgage insurance, if your loan-to-value ratio is above 80%. This is the one that most often kills an otherwise sensible refinance, because LMI is generally not transferable between lenders — you may pay it again.
Against that, count any lender cashback or fee waiver.
If the break-even is a few months, it is usually worth doing. If it is several years, it usually is not — and you should be sceptical of anyone telling you otherwise.
Work out your own break-even point. The refinance savings calculator does the maths in a couple of minutes — discharge fees, break costs and all.
Before you refinance: ask your current lender
This costs one phone call and sometimes solves the whole problem.
Lenders price to retain. Existing customers are frequently on worse rates than new ones, and a retention team can often improve it — particularly if you can credibly say you have an offer elsewhere.
If they match or come close, you have saved yourself several weeks of paperwork. If they do not, you now know your actual position rather than a guess.
What lenders look at when you refinance
A refinance is a new loan application, assessed on your circumstances now — not on the ones you had when you first borrowed.
That means:
- Income is reassessed. If you have changed jobs, gone part-time, gone self-employed, or had a child since you borrowed, your capacity may look different.
- Expenses are reassessed, including any commitments you have taken on since.
- The property is revalued. This determines your loan-to-value ratio and therefore whether LMI applies.
- Repayment history matters. Missed payments on the existing loan are visible and are taken seriously.
People who borrowed several years ago on two incomes and are now on one are the most common case where a refinance that looks obviously beneficial turns out not to be possible. Worth knowing early rather than after an application.
Not sure where your situation lands? A ten-minute call usually answers that faster than reading the rest of this. Book a free chat — no cost, no obligation.
Restructuring — the part people overlook
Refinancing is a chance to fix a loan structure that no longer fits, and structure often matters more than a small rate difference.
Offset accounts. An offset reduces the interest charged without locking the money away. If you hold a meaningful cash balance, an offset can outperform a marginally lower rate — and the money stays accessible.
Splitting fixed and variable. Fixing part of the loan gives repayment certainty; leaving part variable keeps flexibility to make extra repayments. Fixing everything removes flexibility entirely, which is usually a mistake if there is any chance you will sell or pay down early.
Separating loans. If you have an owner-occupied and an investment property tangled into cross-collateralised loans, untangling them can significantly improve what you are able to do next. This gets missed a lot and is expensive to leave alone.
Loan term. Refinancing back to a fresh 30-year term lowers the repayment and raises the total interest paid. Sometimes that trade is worth it. It should at least be a decision rather than a default.
Accessing equity
Equity is the difference between what your property is worth and what you owe. Accessing it means increasing your loan.
Lenders will generally release equity up to 80% of the property value without LMI, but they also want to know what it is for. Some purposes are straightforward — renovations, a deposit on an investment property. Others attract more scrutiny.
Two things worth knowing:
- A valuation drives everything, and the lender’s valuation may not match what you believe the property is worth. Different lenders use different valuers and sometimes reach materially different numbers.
- Accessing equity is still borrowing. It increases your debt and your repayments. It is a useful tool and not free money.
When not to refinance
- The break-even is years away
- You would trigger LMI you have already paid once
- Break costs on a fixed loan swamp the benefit
- Your income or employment has changed in a way that means a new application would not be approved on better terms
- You are chasing a rate difference small enough that the effort and the credit enquiry are not justified
A broker who never tells you to stay put is not assessing your situation.
Common questions
How much does it cost to refinance?
Typically a discharge fee from your current lender, government mortgage registration and discharge fees, and possibly an application or valuation fee at the new lender. Fixed-rate loans can also attract a break cost, which is calculated on the lender’s funding position and can be substantial. Many lenders offer a cashback or waive some fees, which can offset the rest. The only way to know if it is worth it is to work out the break-even point.
Will refinancing hurt my credit score?
A formal application creates an enquiry on your credit file, and several applications in a short period can look unfavourable. This is a good reason to assess properly before applying rather than shopping around by submitting applications to multiple lenders.
Can I refinance if my property has dropped in value?
Possibly, but it depends on your loan-to-value ratio. If falling value has pushed you above 80% you may face lenders mortgage insurance again on the new loan, which frequently makes the move not worth it. This is worth checking early, because it is the most common reason a refinance does not proceed.
Should I refinance to consolidate other debts?
Sometimes, but it needs care. Rolling short-term debt into a 30-year mortgage lowers the monthly payment while often increasing what you pay overall. It can be the right move where it prevents genuine hardship or where the debt is then paid down aggressively. It is the wrong move if the freed-up cash simply funds new debt.
How long does refinancing take?
Usually somewhere between two and six weeks depending on the lender and how quickly documents come together. Discharging from the outgoing lender is often the slowest part and is largely outside anyone’s control.
Have a question about your situation?
A first conversation costs nothing and commits you to nothing. Even if the answer is "wait six months", you will know why — and what to do in the meantime.