When Does It Actually Make Sense to Refinance?
27 April 2026
Refinancing saves Australian borrowers thousands of dollars every year, but only when the numbers actually work. The mistake most people make is chasing a lower rate without calculating what it costs to get there.
What Refinancing Actually Involves
Refinancing means replacing your current home loan with a new one, either with a different lender or a new product with your existing lender. The goal is usually a lower interest rate, better loan features, or both. But the process comes with costs: discharge fees from your current lender, application and settlement fees with the new one, and in some cases, break costs if you are on a fixed rate.
These costs vary widely. Discharge fees typically sit between $150 and $400. Some lenders charge a settlement fee of $100 to $300 on the way in. If you are exiting a fixed-rate loan early, break costs can run into the thousands depending on how much rates have moved and how much time remains on your term. Knowing these figures before you start is not optional. It is the entire basis of the refinancing decision.
The Break-Even Calculation: Does the Math Stack Up?
The core question in any refinancing decision is: how long will it take to recoup the cost of switching? This is the break-even point, and it is a straightforward calculation once you have the right numbers.
If refinancing costs you $2,000 in fees and saves you $200 per month on repayments, your break-even point is 10 months. If you plan to stay in the property and keep the loan for longer than that, refinancing may put you ahead. If you are likely to sell or fix your rate again before then, the saving evaporates before it materialises.
What changes this calculation is the size of your loan. On a $700,000 balance, a 0.5% rate reduction saves roughly $3,500 per year before compounding. On a $300,000 balance, the same rate cut saves around $1,500. The lower your outstanding balance, the harder it becomes for refinancing to clear its own costs quickly enough to be worthwhile.
Rate Gaps That Are Worth Acting On
There is no universal threshold at which refinancing becomes worthwhile. It depends on your loan size, remaining term, and the fees involved. That said, a common reference point used in the broker industry is a rate gap of 0.5% or more between your current rate and the best available comparable product. Below that margin, on a typical loan balance, the fees often eat into the first 12 to 18 months of savings.
Lenders regularly offer their sharpest rates to new customers rather than existing ones. A borrower who took out a loan three years ago and has never renegotiated may be paying a rate 0.7% to 1.0% above what a new customer would receive for the same loan structure today. A broker can run a comparison across the current market to identify whether that gap exists in your situation.
How often should I review my home loan?
Most mortgage brokers suggest reviewing your loan at least every two years, or whenever the RBA cash rate changes significantly. Lenders regularly adjust their product pricing, and a rate that was competitive 18 months ago may no longer be. A review does not always result in refinancing. Sometimes a lender will reprice to keep your business, giving you the information to make a grounded decision.
When It Is Not the Right Move
Refinancing is not always the right answer, even when a lower rate is available. If your property has fallen in value since you purchased it, your loan-to-value ratio (LVR) may have increased. A higher LVR can mean lenders mortgage insurance applies on the new loan, which would dramatically alter the cost calculation.
Your financial position also matters. If your income, employment, or credit profile has changed since you took out your original loan, a new lender will assess your current situation. That does not automatically disqualify you, but it means the serviceability assessment is not a formality. If your borrowing capacity has tightened, you may find the products you are targeting are no longer available to you at the loan size you need.
There is also the question of loan features. A product with a lower headline rate may not include an offset account, or may cap redraw access, or may carry a higher annual fee. For borrowers who actively use an offset account to reduce interest, a marginally lower rate without that feature can end up costing more over time. Comparing total cost of ownership, not just the interest rate, is where the real analysis sits.
Cashback Offers: Free Money or a Distraction?
Several lenders currently offer cashback incentives of $2,000 to $4,000 to borrowers who refinance to them. These can look appealing, but they carry conditions: minimum loan sizes, specific products, and clawback provisions if you leave within a set period, often 24 months. A cashback offer on a loan with a rate 0.3% higher than the best available product can cost more than the cashback is worth over a two-year period on a typical balance. The cashback is worth factoring in, but it should not be the primary reason for choosing a lender.
Key Takeaways
- The refinancing decision comes down to one calculation: how long will it take to break even on the switching costs relative to the monthly saving?
- Fees, including discharge, application, and settlement costs, typically range from $500 to over $2,000, and must be factored into any comparison.
- Fixed-rate borrowers exiting early may face break costs that can significantly outweigh any rate saving. These figures should be confirmed with your current lender before proceeding.
- A loan-to-value ratio above 80% on the new loan can trigger lenders mortgage insurance, which changes the cost picture entirely.
- Cashback refinancing offers can be worthwhile but should be assessed against the rate, fees, and features of the product, not treated as a standalone reason to switch.
- Many lenders price their best rates for new customers rather than existing ones, which means borrowers who have not reviewed their loan recently may be paying more than necessary.
Whether refinancing makes sense depends entirely on your loan balance, current rate, remaining term, and the products available to you right now. The JRW Finance team can run the numbers across the current market and give you a clear picture. Book a conversation at jrwfinance.com.au/meet, or find us on TikTok, Instagram, and Facebook.
