When refinancing is worth it — and when it quietly is not

Refinancing is the highest-return hour of admin available to most homeowners. It is also frequently sold on a number that does not survive contact with the details. Both things are true, so it is worth doing the arithmetic yourself.

Start with the loyalty tax

Lenders price new customers better than existing ones. Nothing about your loan gets cheaper because you have been reliable for six years — in fact the opposite, because you are unlikely to leave.

Find your current rate on your last statement. Compare it to what is available now. A gap of 0.5% or more is common and worth acting on. A gap over 1% means you have been paying for the privilege of not checking.

On a $520,000 balance with 25 years left, dropping from 6.35% to 5.49% saves roughly $290 a month — around $87,000 in interest over the remaining term.

Then price the switch honestly

Switching is not free. Budget for:

• Discharge fee from your current lender — typically $150–$400
• Application or establishment fee at the new lender — $0–$800, often waived
• Valuation fee — $0–$500, often absorbed
• Land titles / registration charges — a few hundred, varies by state
• Break costs if you are on a fixed rate — see below

For a variable-rate borrower the realistic total is usually $500–$1,200. Many lenders waive their own fees to win the business, so ask.

Put your figures into the refinance calculator and look at the break-even line. If you recover the costs in a few months and plan to stay for years, it is straightforward.

Break costs make fixed loans different

If you are mid-way through a fixed term, the calculation changes completely. Break costs are not a set penalty — they are the lender’s loss if wholesale rates have fallen since you fixed. On a large balance with years still to run, they can reach five figures and wipe out any saving.

Do not estimate this. Ring your lender and ask for a written break cost figure. It is valid only for a day or two, but it is the only number worth relying on.

If your fixed term ends within a few months, wait it out.

The trap nobody mentions: resetting the term

Here is where advertised savings come from more often than they should.

You have 22 years left. The new lender writes the loan over 30 years. Your repayment drops a lot — much more than the rate change alone explains — and it looks like a fantastic outcome.

You have just added eight years of interest. The monthly figure fell; the total cost rose, often by tens of thousands.

Ask for the new loan over your remaining term, not a fresh 30 years. If you genuinely need the lower repayment for cash-flow reasons, that is a legitimate choice — but make it deliberately, knowing the price.

Cashback offers

Cashbacks of $2,000–$4,000 appear when lenders are chasing volume. They are real money, and occasionally the best deal on the table. Two cautions:

1. Check the ongoing rate, not just the cash. A $3,000 cashback attached to a rate 0.4% above the market costs you more than it pays inside two years on a typical loan.
2. Cashbacks are usually conditional — minimum loan size, maximum LVR, settlement within a window.

Work out the total cost over three years including the cashback, then compare.

When refinancing is not worth it

• Your balance is small. Under about $150,000, fixed switching costs eat the saving. Ask your current lender for a discount instead.
• You are close to paying it off. With three years left, most of your repayment is principal. There is little interest left to save.
• Your LVR has gone above 80%. If prices fell or you borrowed at 95%, you may trigger LMI a second time. That is rarely recoverable.
• Your circumstances have deteriorated. Refinancing means a fresh serviceability assessment. If you have changed to self-employment, taken a pay cut, or gone on parental leave, you may not qualify — and a declined application marks your credit file. Check your position first.
• You have a fixed loan with years to run. Get the break cost before doing anything else.

The five-minute version

1. Find your current rate.
2. Compare it to current offers. Under 0.3% difference, skip it.
3. Ring your existing lender first and ask them to match. They often will — mention you are looking. This is free and takes one call.
4. If they will not, get the break cost figure if you are fixed.
5. Run the numbers over your remaining term, including switching costs.
6. If you break even inside twelve months, switch.

Step three is the one people skip, and it works often enough to always be worth trying. Retention teams have discretion that the advertised rate does not reveal.