Why refinancing is more relevant than ever
With rates finally trending downward in 2025 and major banks like ANZ forecasting multiple cuts this year, refinancing has become the hottest opportunity in the mortgage world. The first cash rate cut in over four years happened in February, and experts are predicting three to five more cuts throughout the year.
This rate environment has created what industry insiders are calling a "refinancing frenzy" – and for good reason. Data from PEXA shows an 8.4% jump in refinancing activity compared to last year. But is jumping ship to a new lender the right move for you?
What exactly is refinancing?
Refinancing means replacing your existing home loan with a new one – typically to secure better terms or a lower interest rate. It's essentially hitting the reset button on your mortgage, with the goal of improving your financial position.
When refinancing makes sense (and when it doesn't)
Potential benefits of refinancing
- Lower interest rates = smaller repayments Current market data shows refinancers can access rates as low as 5.64% with offset accounts (compared to big four bank averages of 6.7%). On a $500,000 mortgage, this difference alone can save you $315 per month.
- Access to better features Refinancing can unlock features like offset accounts – where your savings reduce the interest calculated on your loan. Recent APRA statistics show Australians have a record $300.7 billion stashed in offset accounts, with $13 billion added in just the last quarter of 2024.
- Debt consolidation opportunities Bringing high-interest debts under your mortgage umbrella can simplify finances and potentially reduce overall interest costs.
- Flexibility to change loan terms Want to pay off your loan faster? Or need to extend the term? Refinancing lets you restructure to match your current goals.
When to think twice
- Break fees on fixed-rate loans If you're locked into a fixed rate, the break fees might outweigh any benefit from switching.
- Lender's mortgage insurance (LMI) considerations Having less than 20% equity might trigger LMI on your new loan, potentially negating interest savings.
- Short remaining loan term If you're close to paying off your mortgage, the costs of switching might not be worth it.
- Property value decreases If your home's value has dropped, you might struggle to get favorable terms.
The hidden costs of refinancing you need to know
Before jumping at a shiny new interest rate, consider these potential costs:
- Discharge fees: Typically $300-$500 to exit your current loan
- Application fees: $200-$600 for your new loan
- Valuation fees: $200-$400 for property assessment
- Settlement fees: $200-$300 for loan processing
- Government charges: Varies by state, potentially including stamp duty
- Lender's mortgage insurance: May apply if your equity is below 20%
How to determine if refinancing will actually save you money
Do this simple calculation:
- Calculate your total refinancing costs (all fees listed above)
- Determine your monthly savings with the new rate
- Divide costs by monthly savings to find your break-even point in months
For example, if refinancing costs $3,000 and saves you $300 monthly, you'll break even after 10 months. Anything beyond that is pure savings.
The offset account advantage – don't overlook this
One critical feature that can make or break your refinancing decision is the offset account. As the document shows, Australians have collectively saved $300.7 billion in offset accounts, with $73 billion added since interest rates started rising.
An offset account directly reduces the loan amount on which interest is calculated. For example, with a $1 million mortgage and $50,000 in your offset account, you'd only pay interest on $950,000.
The offset account trap to avoid
Beware of misleading offers. Some lenders advertise ultra-low rates that don't include offset accounts. Westpac recently made headlines with their 5.84% variable rate for refinancers, but this rate doesn't include an offset account feature. Their loans with offset accounts jump to 7.19% – a massive difference that could cost you thousands more annually.
Other banks like CBA and ANZ allow offsets with their best rates, though conditions may apply.
Current best refinance rates with offset accounts (April 2025)
Based on recent market data, these lenders offer the most competitive rates with genuine offset account features:
- People's Choice: 5.64%
- Bank of China: 5.68%
- G & C Mutual Bank: 5.70%
- Unity Bank: 5.70%
- Homestar Finance: 5.74%
- The Capricornian: 5.74%
- Tiimely Home Loans: 5.74%
- Police Credit Union: 5.74%
Compare these to the average big four bank rate of around 6.7% to see potential savings.
Non-bank lenders – notes to be aware of
While non-bank lenders might offer attractive rates, be wary about their offset accounts. Unless they're APRA-regulated, they cannot offer true, separate offset accounts. This means:
- Your money isn't protected by the Government Deposit Guarantee
- Your funds could be locked up if you encounter financial difficulties
- You may lose tax deduction eligibility if you later convert your property to an investment
How to negotiate with your current lender before switching
Before committing to a new loan, try these negotiation tactics with your current lender:
- Do your homework: Research competitive rates to know what leverage you have
- Be direct: Tell them you're considering refinancing elsewhere
- Highlight your value: Emphasise your good payment history and customer loyalty
- Be specific about what you want: Quote the exact rate or features you're after
- Be prepared to walk away: Sometimes the best deals come when they know you're serious
- Get a broker to help: Brokers have long-standing relationships with bank representatives
Lenders hate losing customers – especially good ones – and retention teams often have authority to offer significant discounts.
The refinancing process: What to expect
- Research and comparison: Explore available options through comparison sites or a mortgage broker
- Application: Submit financial documents for assessment
- Property valuation: The new lender will assess your property's current value
- Conditional approval: Initial go-ahead based on the information provided
- Final approval: Official loan offer with terms and conditions
- Settlement: The new lender pays out your old loan
- Start making repayments on your new loan
The process typically takes 4-6 weeks, though this varies between lenders.
Is now the right time to refinance?
With rates already starting to fall and expectations for more cuts throughout 2025, now presents a strategic window for refinancing. Each rate cut increases borrowing capacity, making it easier to qualify for better loans – effectively unlocking what some call "home loan jail."
The combination of official RBA cuts plus the additional savings from switching to a more competitive lender creates a double benefit that smart homeowners are already capitalising on.
The bottom line
Refinancing can potentially save you thousands over the life of your loan, but it requires careful calculation and consideration of your specific situation. The current market offers particularly favorable conditions for refinancers, with competitive rates and expectations of further rate cuts.
If you're considering refinancing, don't make the decision alone. A professional mortgage broker can analyse your specific situation, navigate the complexities, and negotiate with multiple lenders on your behalf to secure the best possible outcome.
