Refinancing your home loan: is it worth it?
Refinancing can be a way to reduce your repayments, access different loan features or restructure your debt. But it isn't right for everyone, and the costs of switching need to be weighed against any savings.
So is moving to a new lender the right move for you? Here's what to consider.
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 If you can move to a lower interest rate, your repayments may fall. Even a small difference in rate can add up over the life of a loan.
- Access to better features Refinancing can unlock features like offset accounts, where your savings reduce the interest calculated on your loan.
- 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 favourable terms.
The hidden costs of refinancing you need to know
Before jumping at a shiny new interest rate, consider these potential costs:
- Discharge fees: Charged by your current lender to close your loan
- Application fees: Some lenders charge a fee to set up your new loan
- Valuation fees: Some lenders charge for a property valuation
- Settlement fees: Some lenders charge for loan processing at settlement
- Government charges: Fees to discharge and register the mortgage, which vary by state
- 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. After that point, you're ahead.
The offset account advantage: don't overlook this
One feature that can make or break your refinancing decision is the offset account.
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
Check what's included in the rate you're offered. Some lenders advertise low rates on loans that don't include offset accounts, while their loans with an offset attract a higher rate. That difference can outweigh the headline saving.
Non-bank lenders: notes to be aware of
If you're considering a non-bank lender, check how their offset account works. 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: Lenders may offer more when they know you're serious
- Get a broker to help: Brokers have long-standing relationships with bank representatives
Lenders don't like losing customers, especially good ones, and retention teams can sometimes offer a lower rate.
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
How long the process takes varies between lenders and depends on your circumstances.
When is the right time to refinance?
There's no single right time. It can be worth reviewing your loan when a fixed rate period is ending, your circumstances change, or it's been a while since you last compared your rate. Changes in interest rates and in your income can also affect how much you can borrow and which loans you qualify for.
A broker can compare your current loan with other options and work out whether switching would leave you better off after costs.
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. Whether it's worth it depends on your current rate, the features you need and the costs of switching.
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 find a loan that suits you.
Last reviewed: September 2026.
