Should I Refinance My Home Loan? How to Calculate if It's Worth It

Australian homeowners collectively leave billions of dollars on the table each year by staying with their current lender out of inertia. With the Reserve Bank of Australia having moved rates sharply, the gap between the best available mortgage rates and what loyal customers pay has never been wider. Here's how to calculate whether refinancing is actually worth it — with real numbers.

How Refinancing Works

Refinancing means replacing your current home loan with a new one — either with your existing lender (a rate renegotiation) or with a new lender. The goal is typically to:

• Secure a lower interest rate and reduce repayments
• Access equity for renovation, investment, or other purposes
• Switch from variable to fixed rate (or vice versa)
• Consolidate other debts into the mortgage
• Change loan features (offset account, redraw, repayment flexibility)

This guide focuses on rate-driven refinancing — the most common reason and the one with the clearest mathematical case.

The Refinancing Calculation

Refinancing Costs to Factor In

The most common mistake is looking only at the rate difference and ignoring the switching costs. Here's what to check:

Costs to Exit Your Current Loan

• Discharge fee: $150–$500. Charged by most lenders to close your loan and release the mortgage.
• Break costs (fixed rate loans): Potentially thousands of dollars if you're breaking a fixed rate early. Get the exact figure in writing from your lender before proceeding.
• Early repayment fee: Some older loans (particularly low-doc) have deferred establishment fees that apply if you refinance within the first few years.

Costs to Set Up the New Loan

• Application / establishment fee: $0–$800. Many online and non-bank lenders waive this.
• Property valuation: $200–$600. Some lenders cover this, others pass it to you.
• Lender's Mortgage Insurance (LMI): Applies if your equity is below 20% of the property's current value. Can be substantial ($5,000–$30,000+). This is the biggest potential trap in refinancing.
• Title registration: $100–$350 depending on state.
• Legal / settlement fees: $0–$500. Varies by lender.

The LMI Trap

If your outstanding loan is more than 80% of your property's current value, refinancing to a new lender will trigger LMI again. This is often thousands of dollars and can completely wipe out years of interest savings.

If your LVR is above 80%, first explore whether your existing lender will reduce your rate — you can often renegotiate without triggering LMI by staying with the same lender.

When Refinancing Is Clearly Worth It

• Your LVR is under 80% (no LMI risk)
• Rate difference is 0.4% or more
• You have more than 5 years remaining on your loan
• You're not on a fixed rate (or your fixed period ends soon)
• Total switching costs are under $3,000
• Your break-even period is under 18 months

When to Think Carefully

• You're within 1–3 years of paying off the loan (savings period too short)
• Your fixed rate break cost is high
• You're above 80% LVR and LMI applies
• The rate difference is less than 0.25%
• You plan to sell within 2 years

Negotiating With Your Current Lender First

Before going to a new lender, call your current bank and ask for a rate review. Research the best comparable rates in the market (using comparison sites) and state specifically what you've found. Banks routinely offer rate discounts of 0.2–0.5% to customers who threaten to leave — at zero cost and no paperwork.

If they won't budge, then proceed with refinancing. Having a conditional approval from a new lender often prompts a better counteroffer.

Frequently Asked Questions

How often can I refinance?

There's no legal limit, but refinancing too frequently is costly. Most financial advisers suggest refinancing no more than every 2–3 years, and only when the numbers clearly stack up. Frequent refinancing also slightly impacts your credit score each time a lender runs a credit check.

Can I refinance with a bad credit score?

It's harder but not impossible. Non-conforming lenders specialise in borrowers with adverse credit history, but rates are higher. If your credit situation has improved since you took out your original loan, you may qualify for standard lending again. Check your credit score (free via Equifax or Illion) before applying.

Should I use a mortgage broker for refinancing?

Brokers have access to a wide panel of lenders (often 30–50+) and do the comparison work for you. Their service is typically free to you — they're paid a commission by the lender. The risk is that some brokers steer clients toward lenders who pay higher commissions rather than the absolute best rate. Ask your broker to show you the full panel comparison.

Does refinancing affect my credit score?

Each loan application generates a "hard inquiry" on your credit file, which temporarily reduces your score by a small amount. Multiple applications in a short period have more impact. Rate shopping with multiple lenders within 14 days is usually treated as a single inquiry by credit bureaus.