Refinancing gets talked about like it’s always a good idea. It’s not. Done right, it can save you tens of thousands. Done wrong, you end up paying exit fees, break costs, and potentially re-triggering LMI — and you’re worse off than when you started.
Here’s how to actually think about it.
When Refinancing Makes Sense
The basic maths is straightforward. If your current rate is meaningfully higher than what’s available elsewhere, and the cost of switching doesn’t wipe out the savings, refinancing makes sense.
A rule of thumb I use with clients: a rate difference of 0.5% or more is worth investigating. Anything less, the switching costs often eat up the gain.
Here’s a real example. A $750,000 variable loan at 6.5% costs about $4,740/month in principal and interest (30-year term). The same loan at 5.9% drops to roughly $4,402/month. That’s $338/month, or $4,056 a year. Over five years, that’s north of $20,000 — even accounting for some switching costs.
At that point, you’d be mad not to at least look at it.
When Refinancing Doesn’t Make Sense
You’re on a Fixed Rate with Break Costs
Fixed rate break costs can be brutal. Lenders calculate them based on the difference between your fixed rate and current wholesale funding rates, multiplied by your remaining loan term and balance. On a $700k loan with two years of a fixed term remaining, break costs of $10,000–$20,000 are not unusual. Always get this figure in writing before doing anything.
You’re Close to Paying Off the Loan
If you’ve got less than three to five years left on the mortgage, the interest saving is relatively small in dollar terms. The switching costs — discharge fee, new loan establishment fee, potentially a new valuation — might not stack up.
You’ve Dropped Below 20% Equity
If your property has dropped in value since you bought it, or you’ve redrawn from your loan, you might now be at an LVR above 80%. Switch lenders in that position and you’ll likely have to pay LMI again — even though you already paid it once. LMI on a $750k loan at 85% LVR can be $10,000+ capitalised into the loan. That kills the numbers fast.
The Cashback Trap
Lenders love a cashback offer. $2,000 to $4,000 sounds great until you look at the fine print. The rate is often higher than other options. The cashback is taxable income for investors. And in 12 months, you’ve paid more in interest than you received in cash. I’ve seen clients come to me after taking a $3,000 cashback on a loan that was 0.4% above market — they gave up $3,000+ in annual interest savings for a one-time payment. The maths didn’t work.
What About Your Current Lender?
Most people call their bank first. That’s understandable — it feels easier. But here’s the reality: your bank has no incentive to offer you their sharpest rate until you’ve threatened to leave. Even then, their retention team might only match the market, not beat it.
A broker has access to 40+ lenders and sees what’s actually available across the market. That matters when you’re trying to work out whether your bank’s retention offer is genuinely competitive or just good enough to stop you from leaving.
The Process (and What to Expect)
For most variable refinances, the process takes 4–6 weeks from application to settlement. You’ll need:
- Last 2–3 payslips or last 2 years tax returns (if self-employed)
- Last 6 months home loan statements
- Council rates notice (for property valuation purposes)
- Photo ID
The new lender orders a valuation — sometimes desktop, sometimes in-person. Then they assess serviceability, approve the loan, and your broker coordinates the discharge from your old lender. You’re usually not required to do much beyond signing documents.
One More Thing: Don’t Just Chase the Rate
Rate matters, but so does the loan structure. Offset account linked? Redraw available? Can you make extra repayments without penalty? Is there a fee for splitting into fixed and variable? Some of the cheapest rates come from no-frills products that might not suit how you actually use your loan.
Getting these details right is part of what makes refinancing worth doing properly rather than just chasing a headline rate.
Thinking about refinancing? Let’s run the numbers — your current rate, what’s available, break costs if applicable, and whether the switch actually makes financial sense. It’s a 30-minute conversation and you’ll know exactly where you stand. Get in touch with the Loan Connect team today.
