🔑 Key Takeaways
Refinancing is the process of replacing your existing home loan with a new loan, either with your current lender (an internal refinance or retention deal) or with a different lender (an external refinance). The new loan pays off the old one, and you continue making repayments under the terms of the new facility.
Australians refinance more than $17 billion in home loans every month, making it one of the most common financial transactions in the country. Despite this, many borrowers stay with their original lender for years or even decades without reviewing their loan, often paying significantly more interest than they need to. The difference between the rate you are currently paying and the best rate available in the market is called the loyalty tax, and it can cost thousands of dollars every year.
Refinancing is not just about getting a lower rate, although that is the most common motivation. Other reasons to refinance include accessing equity that has built up in your property, consolidating debts into a single lower-rate facility, changing from a variable to fixed rate (or vice versa), switching to a loan with better features like an offset account or redraw, and restructuring your finances as part of a broader wealth-building strategy.
For details on how we manage the comparison, application and settlement process for clients, see our refinancing service page.
Your fixed rate is expiring. When your fixed rate period ends, your loan automatically reverts to the lender’s standard variable rate, which is almost always higher than competitive market rates. This is the single most important trigger to review your loan. Contact your broker at least three months before your fixed rate expires to start comparing options.
Your rate is above market. If your variable rate is more than 0.25% above what is currently available from competitive lenders, you are likely paying too much. Lenders reserve their best rates for new customers, which means existing borrowers often drift above the market over time. A rate comparison with your broker will quickly reveal whether you are paying a loyalty tax.
Your property has increased in value. If your property has grown significantly, your LVR has improved, potentially giving you access to better rates. A borrower who purchased at 90% LVR three years ago may now be at 75% LVR due to property growth and principal repayments, qualifying for rates that are 0.3% to 0.5% lower than their original loan.
Your circumstances have changed. A salary increase, a partner starting work, or paying off other debts can all improve your borrowing position and open up better lending options. Conversely, if your income has decreased, refinancing to a lower rate or extending your loan term can reduce your monthly repayments and ease cash flow pressure.
📊 Potential Savings from Refinancing a $500,000 Loan
| Rate Reduction | Monthly Saving | Annual Saving | Over 25 Years |
|---|---|---|---|
| 0.25% | $76 | $912 | $26,400+ |
| 0.50% | $153 | $1,836 | $54,000+ |
| 0.75% | $230 | $2,760 | $82,000+ |
| 1.00% | $308 | $3,696 | $112,000+ |
These savings are calculated on the rate difference alone and do not account for any cashback offers, fee savings, or better offset account utilisation that may come with the new loan. When all benefits are combined, the total value of refinancing can be significantly higher than the interest saving alone.
📋 Client Example: Savings After Six Years Without a Review
A homeowner in Geelong had a $540,000 variable loan at 6.89% with one of the major banks. They had been with the bank for six years and had not reviewed their rate. We identified a lender offering 6.09% with a $3,000 cashback incentive. After accounting for approximately $800 in refinancing costs and the $3,000 cashback, the net savings were $4,532 in the first year alone, with ongoing savings of approximately $4,320 per year after that. Over the remaining 24-year loan term, the total savings exceeded $90,000.
Step 1: Review your current loan. Gather your latest loan statement showing your current balance, rate, loan features, and any fees that apply to discharging the loan. Check for any fixed rate break costs, exit fees, or deferred establishment fees that might affect the decision to refinance.
Step 2: Compare your options. Your broker will compare your current loan against products from across the market, considering not just the rate but also features, fees, flexibility, and the lender’s service reputation. The comparison accounts for any costs of switching so you can see the true net benefit.
Step 3: Apply with the new lender. Your broker submits the application with all supporting documentation. The new lender assesses your income, expenses, credit history, and the property value (usually through a desktop valuation or automated valuation model, though a full physical valuation may be required for higher LVR loans).
Step 4: Approval and loan documents. Once approved, the new lender issues loan documents for signing. Your broker reviews the terms to ensure they match what was agreed. You sign the documents and return them to the lender.
Step 5: Settlement. The new lender’s solicitor coordinates with your existing lender’s solicitor to arrange settlement. On settlement day, the new lender pays out the old loan and the new mortgage is registered. The entire process typically takes two to four weeks from application to settlement.
📋 Client Example: Refinancing After Fixed Rate Expiry
A couple in Belmont had a $480,000 loan that reverted from a 2-year fixed rate of 4.99% to the variable rate of 7.14% when their fixed period ended. They had not reviewed the loan and were paying $740 per month more than necessary. We refinanced them to a new lender at 6.09% with a $3,000 cashback, reducing their monthly repayments by $392 and saving them $4,704 per year in interest. The total first-year benefit including the cashback was $7,704. The entire process was handled by our team at no out-of-pocket cost to the client.
While refinancing can save significant money, there are costs involved that need to be weighed against the benefits. Common costs include a discharge fee from your existing lender (typically $150 to $400), government registration fees for the new mortgage (approximately $120 to $170 in Victoria), valuation fees if the new lender requires a physical valuation ($200 to $600), and any application or establishment fees charged by the new lender (many lenders waive these for refinancers).
The most significant potential cost is fixed rate break costs. If you are currently on a fixed rate loan and want to refinance before the fixed period ends, your lender may charge a break cost that reflects the difference between your fixed rate and current wholesale rates. These costs can range from a few hundred dollars to tens of thousands, depending on the size of the loan, the remaining fixed term, and how far market rates have moved. Always ask your broker to obtain a break cost estimate before committing to refinance from a fixed rate loan.
In most cases, the total cost of refinancing is between $500 and $1,500 (excluding any fixed rate break costs). When you are saving $2,000 to $5,000 or more per year in interest, the refinancing costs are recovered within the first few months, making it a strongly positive financial decision.
Refinancing is not always the right move. Here are situations where staying with your current lender may be the better option.
Small rate difference. If the new rate is only 0.10% to 0.15% lower and you do not need additional features, the switching costs may outweigh the savings, particularly on smaller loan balances. As a rough guide, a rate reduction needs to save you at least $1,500 to $2,000 per year to justify the costs and effort of switching.
You are close to paying off your loan. If your remaining balance is under $100,000 or you are within five years of paying off your loan, the total interest savings from a rate reduction are limited and may not justify the switching costs.
Your circumstances have changed negatively. If your income has dropped, you have taken on additional debt, or your property value has declined since you took out your original loan, you may not qualify for the best rates with a new lender. In some cases, your existing lender may offer a rate reduction (a retention offer) to keep your business: ask your broker to negotiate this before applying elsewhere.
You are in a fixed rate with high break costs. If the estimated break costs exceed the projected savings from refinancing, it is usually better to wait until your fixed rate expires before switching. Set a reminder to review your options two to three months before the fixed period ends.
One of the most popular reasons to refinance is to access equity: the difference between your property’s current value and your outstanding loan balance. As property values rise and you pay down your mortgage, equity accumulates, and refinancing allows you to convert that equity into usable funds.
Common uses for equity include funding a deposit for an investment property, completing home renovations or extensions, consolidating higher-interest debts like credit cards or personal loans into your home loan at a much lower rate, funding education costs, or creating a financial buffer in an offset account for emergencies.
When accessing equity, it is critical to structure the new borrowing correctly. If the funds are being used for investment purposes (such as buying an investment property), the interest on the equity release portion is tax-deductible. Setting up a separate loan split for the investment borrowing keeps the deductible and non-deductible portions clearly separated, which simplifies your tax affairs and maximises your legitimate deductions.
💡 Pro Tip
If you are refinancing to consolidate debt, commit to a plan that prevents the debt from building up again. Cut up credit cards once they are paid off through the refinance, or at minimum reduce the credit limits to small amounts. The worst outcome is consolidating $30,000 in credit card debt into your mortgage and then running the cards back up. You end up with the original debt plus the consolidated amount on your home loan.
Before going through a full refinance, it is worth seeing if your current lender will offer a retention deal: a discounted rate to keep your business. Many borrowers do not realise that their lender has a dedicated retention team whose job is to prevent customers from leaving. A simple phone call, or better yet having your broker call on your behalf, can result in a 0.20% to 0.50% rate reduction without any of the paperwork or costs of a full refinance.
The key to a successful negotiation is having genuine competitive offers to reference. When your broker provides a comparison showing that another lender is offering 0.40% less, your current lender has a strong incentive to match or come close. They know the cost of losing a customer (the lost interest income, the trailing commission they pay your broker, and the acquisition cost of finding a new borrower) and will often make meaningful concessions to retain your loan. Lenders are typically most willing to reduce rates for borrowers with a good repayment history and a reasonable loan to value ratio, so a clean record strengthens your negotiating position.
However, retention offers have limits. If your lender cannot match the market within 0.10% to 0.15%, or if the competing loan offers significantly better features (such as a full offset account or more flexible redraw), a full refinance may still be the better option. Your broker can advise whether to accept a retention offer or proceed with switching based on the total value of each option.
Extending your loan term without realising it. When you refinance to a new 30-year loan after already paying 5 years on your original loan, you are effectively adding 5 years to your repayment period. This can increase the total interest paid even if the rate is lower. Ask your broker to structure the new loan on the same remaining term as your original loan, or at least be aware of the trade-off between lower monthly repayments and higher total interest.
Focusing only on the interest rate. The lowest rate is not always the best loan. A loan at 5.99% with a full offset account, no fees, and unlimited extra repayments can save more money overall than a loan at 5.89% with no offset and annual fees of $395. Compare the total cost of the loan, including all features and fees, not just the headline rate.
Refinancing too often. While regular loan reviews are important, refinancing every 12 months can create unnecessary costs and paperwork. Each refinance involves discharge fees, settlement costs, and a credit enquiry. Generally, the savings need to justify the costs and effort. A rate reduction of at least 0.25% to 0.30% on a loan of $400,000 or more typically makes refinancing worthwhile.
Not considering your future plans. If you are planning to sell within the next 12 months, renovate and need construction finance, or are expecting a significant change in income, these factors should influence whether and how you refinance. Your broker can structure the refinance to accommodate upcoming changes rather than creating a situation where you need to refinance again shortly after.
At minimum, review your loan once a year and whenever a significant trigger occurs, such as a fixed rate expiring, a major rate cut by the RBA, or a change in your personal circumstances. Many borrowers leave their review until the annual tax return season, using it as a reminder to check their loan rate against the market. Your broker can do a quick comparison in minutes and let you know whether action is worthwhile.
A refinancing application will appear as a credit enquiry on your file, which may cause a minor temporary dip in your credit score. However, if the refinance results in you paying off credit cards or other debts, and you maintain consistent repayments on the new loan, the net effect on your credit score over time is typically positive. Avoid making multiple loan applications to different lenders simultaneously. Work with a broker who submits one targeted application to the right lender.
Yes, though your options are more limited. Some lenders will accept refinances at up to 90% LVR with lenders mortgage insurance (LMI), though LMI adds significant cost. If you are close to 80% LVR, it may be worth waiting a few months for further property growth or principal repayments to get you over the threshold and avoid LMI. Your broker can calculate your current LVR and advise on the best timing.
Yes. Investment property refinancing works the same as owner-occupied refinancing, though rates are typically slightly higher. The tax-deductible nature of investment loan interest makes refinancing particularly valuable: the after-tax savings are higher because you are reducing a deductible expense.
Yes, refinancing can be used to consolidate higher-interest debts (credit cards, personal loans, car loans) into your home loan at a much lower rate. Be cautious, though: you are converting short-term debt into potentially 30-year debt. The monthly savings are real, but the total interest paid over 30 years on a consolidated car loan far exceeds what you would have paid on the original 5-year loan. We recommend maintaining the higher repayments to clear the consolidated debt quickly.
No. A mortgage broker’s service for refinancing is free to you. The broker is paid a commission by the lender you refinance to, and the interest rate you receive through a broker is the same as (and frequently better than) what you would receive by approaching the lender directly. There is no financial downside to using a broker for refinancing, and the time savings alone are significant given the amount of comparison and paperwork involved.
Our experienced brokers compare options across 60+ lenders to find the right solution for your situation.
Director & Senior Finance Broker
With years of experience in mortgage broking and finance, Melanie helps clients across Geelong, the Surf Coast, Melbourne and regional Victoria navigate the complexities of home loans and business finance. Contact our team on 03 9020 2699.
