Almost every second conversation I have with an existing client eventually turns into the same question. Should I refinance? It’s a fair question, and honestly, the answer is different for almost everyone who asks me. So instead of giving you a generic yes or no, I want to walk you through exactly how I think about it, the numbers that actually matter, and the traps I see catch people out again and again.
Refinancing simply means replacing your current home loan with a new one, either with a different lender or with your existing lender on different terms. The new loan pays out what’s left owing on your old one, and from that point forward you’re paying off the new loan under its own rate, term, and features. People refinance for a lot of different reasons, and it’s worth being clear on yours before you start comparing anything, because the right move genuinely depends on what you’re actually trying to achieve.
A better interest rate. This is the reason most people come to me first, and for good reason. Even a modest rate reduction on a large loan balance adds up to real money over a year, let alone over the life of a 25 or 30 year loan.
Accessing equity. If your property has grown in value or you’ve paid down a chunk of your loan, refinancing can let you unlock some of that equity for a renovation, an investment property deposit, or another purpose entirely.
Consolidating other debts. Some people use a refinance to roll a car loan or credit card debt into their home loan, which usually comes with a lower interest rate than unsecured debt, though it can also mean paying that debt off over a much longer period, so it’s worth thinking through properly rather than just chasing a lower monthly repayment.
Switching loan features. Maybe your current loan doesn’t have an offset account, or you’re on a fixed rate with no flexibility and you want the option to make extra repayments. Refinancing can get you access to features that better suit how you actually want to manage your money.
Changing your loan structure. Some borrowers refinance to move from principal and interest to interest only, or the other way around, or to split a loan between fixed and variable to manage risk differently.
Your circumstances have changed. A change in income, a new partner, or a shift in your long term plans can all be good reasons to revisit whether your current loan still fits.
In my experience, refinancing tends to make sense in a handful of specific situations, and it’s worth checking your own loan against each of these.
You haven’t reviewed your rate in a couple of years. Loyalty is rarely rewarded in home lending. Lenders regularly offer sharper rates to new customers than they do to existing ones, which means a loan that was competitive when you took it out can quietly become uncompetitive over time without you ever being told.
Your equity position has genuinely improved. Lenders price loans in bands based on your loan to value ratio, or LVR, and the most common breakpoints sit around 80, 70, and 60 percent. If your property has grown in value or you’ve paid down your loan since your last valuation, you may have moved into a lower LVR band than the bank has on record, which can unlock a sharper rate you’re not currently getting.
The rate gap to another lender is meaningful. As a general rule, I want to see a genuine, sustained rate gap, not just a headline number that looks good for six months before reverting. A rate difference of a few tenths of a percent on a $600,000 loan can be worth a few thousand dollars a year in interest, and over several years that number becomes significant.
You’re planning to stay in the loan for a while yet. Refinancing comes with switching costs, so the savings need time to outweigh what it costs you to move. If you’re planning to sell or pay off the loan within the next year or two, the maths often doesn’t stack up the way it would if you’re staying put for five years or more.
Your fixed term is about to expire anyway. If you’re only six to twelve months out from the end of a fixed rate period, it usually makes more sense to wait it out rather than pay a break cost now to save a smaller amount over a short remaining window.
Breaking your fixed rate would trigger a large break cost. If you’re on a fixed rate and want to exit early, your lender will generally charge a break cost to recover the difference between your fixed rate and current wholesale rates. This cost is specific to your loan and current market conditions, so always get a written break cost estimate from your lender before making any decision, since it’s free to ask and it removes the guesswork entirely.
Refinancing would trigger Lenders Mortgage Insurance again. If your new loan puts you back above an 80 percent LVR, or if your existing LMI doesn’t transfer to a new lender, which it generally doesn’t, a fresh LMI premium can wipe out several years of rate savings in one hit. In that situation, it’s often better to wait until you’ve built more equity before refinancing.
The savings don’t clear the switching costs within a reasonable timeframe. This is the calculation that matters more than any other number in this whole article, and I’ll walk through it properly below.
Here’s the calculation I run for every client considering a refinance, and it’s simpler than people expect. Add up your total switching costs, which typically include any break costs, discharge fees from your current lender, application or establishment fees on the new loan, and valuation or settlement fees. Then divide that total by your expected monthly savings from the lower rate. That gives you the number of months it takes to break even on the switch. If the answer is a handful of months and you’re planning to be in the loan for years, refinancing is very likely worth it. If the answer stretches out much longer than you plan to keep the loan, it’s worth pausing.
It’s also worth remembering that a comparison rate, which combines the interest rate with most fees and charges into a single figure, gives a more accurate picture of a loan’s true cost than the headline interest rate alone. According to ASIC’s Moneysmart, a lower rate loan isn’t automatically a better deal once fees are properly accounted for, so it’s worth checking the comparison rate rather than just the advertised number when you’re weighing up options.
You’ve probably seen lenders advertise cashback offers to attract refinancers, sometimes a few thousand dollars just for switching. These can be genuinely useful, but ASIC has specifically flagged that borrowers should do the maths properly to make sure a cashback offer still leaves you ahead once you account for the interest rate and fees on the new loan over the long term, not just the one off payment at the start. A loan with a slightly higher rate and a tempting cashback can easily cost you more over several years than a loan with no cashback at all but a genuinely sharper rate. I always run both scenarios side by side for clients before recommending either way.
One thing ASIC consistently points out, and something I tell every client, is that it’s worth telling your current lender you’re planning to switch before you actually do. If you have decent equity in your home and a solid repayment history, your existing lender may offer to reduce your rate to keep your business, sometimes without you needing to go through a full refinance at all. It costs nothing to ask, and even if they can’t match what’s available elsewhere, it gives you a clear baseline to compare other offers against.
Once you’ve decided refinancing makes sense, the process itself is fairly straightforward, though it does take some coordination. You’ll need a current statement showing your payout figure, an updated picture of your income and expenses since your last application, and ideally an up to date valuation of your property. From there, we compare lenders properly, not just on rate but on fees, features, and how each lender treats your specific situation, prepare the application, and manage the settlement process so your new loan pays out the old one with minimal disruption. Most straightforward refinances settle within a few weeks, though it can vary depending on the lender and how quickly documentation comes together.
FAQs
I generally suggest checking your rate against the market at least once a year, and definitely any time you hear about a rate move or notice your property value has changed significantly. It costs nothing to check, and it's the only way to know whether your current deal is still competitive.
Applying for a new loan does involve a credit check, which can cause a small, temporary dip in your credit score. For most borrowers with a stable repayment history, this impact is minor and short lived, and it's generally outweighed by the benefit of a better loan if the numbers stack up.
Yes, though the documentation requirements are a bit different. Lenders will typically want to see your recent tax returns, business financials, or alternative income evidence depending on how your business is structured. It's still very achievable with the right preparation.
Not necessarily, but it can if you're not paying attention. Many refinances default to a new 25 or 30 year term unless you specifically request a shorter one that matches how much time is actually left on your current loan. This is worth raising explicitly, since extending your term can increase the total interest you pay even if your rate has improved.
It depends entirely on the numbers. Sometimes your current lender will match or beat the market to keep you, which avoids the switching costs entirely. Other times, a genuinely sharper deal is only available elsewhere. This is exactly why comparing both properly, rather than assuming either option is automatically better, is worth doing before you commit.
There's no fixed minimum, but having at least 20 percent equity generally gives you access to the sharpest rates and avoids triggering Lenders Mortgage Insurance again. Refinancing with less equity than that is still possible, but it's important to check whether LMI would apply on the new loan before deciding.
If you’re not sure where your current loan sits against what’s available right now, that’s exactly the kind of health check I run for clients regularly, and it costs nothing to find out. Take a look at our Home Loan Refinancing page for more detail, and if a rate review uncovers extra borrowing capacity, our Investment Property Loans page is worth a read too.
I sit down with a business owner almost every week who’s convinced they can’t get a home loan simply because they don’t have payslips. It’s
I get a version of this question constantly from clients who already own their home and are looking at their first investment property. They assume
I get asked about Lenders Mortgage Insurance almost every week, usually by a client who has just seen a number on their loan quote and
