When Should You Refinance?
Refinancing means replacing your current home loan with a new one, usually from a different lender. The main reason people do it: to save money.
Signs It's Time to Refinance
- Your rate is above market, if you haven't checked in 2+ years, you're almost certainly paying too much. Lenders give their best rates to new customers, not existing ones
- Your fixed rate is ending, when your fixed period expires, you'll roll onto the lender's variable rate, which is often much higher
- Your situation has changed, income increased, debts paid off, property value grown. You may now qualify for better products
- You want to access equity, refinance to a higher loan amount and take cash out for renovations, investing, or consolidating debts
- Your lender's service is poor, slow processing, missing features (no offset, limited app functionality)
In March 2026, the average existing customer variable rate is around 6.20%. The average new customer rate for the same product? Around 5.89%. On a $500,000 loan, that 0.31% gap costs you $1,550/year, for doing nothing wrong except staying with your current lender.
Over 5 years of inaction, that's $7,750 you've handed over unnecessarily. Refinancing takes about 2 weeks of effort.
Rule of thumb: If you can save 0.25% or more on your rate and you're not on a fixed loan, it's almost always worth looking at. A broker can model the exact savings in minutes.
Costs of Switching
Refinancing isn't free. Here's what it might cost, and whether the savings outweigh it.
| Cost | Amount | Notes |
|---|---|---|
| Discharge fee | $150-$400 | Your old lender charges this to release the mortgage. Everyone pays this |
| Break cost (fixed loans) | $0-$50,000+ | Only if you're breaking a fixed rate. Can be enormous if rates have dropped since you fixed |
| Government fees | $200-$600 | Registration of new mortgage, discharge of old one. Varies by state |
| Valuation fee | $0-$500 | Many new lenders waive this. Some do desktop valuations at no cost |
| Application fee | $0-$600 | Most competitive lenders waive this to attract refinancers |
| Settlement fee | $200-$400 | Conveyancer/solicitor fee for handling settlement. Not always needed |
Current loan: $600,000 at 6.30%. New offer: 5.89%.
Monthly savings: $152
Total switching costs: ~$800 (discharge + gov fees, no break cost)
Break-even: 5.3 months
After that, you're saving $152/month forever. Over 5 years, that's $8,320 saved after costs. Over the remaining life of the loan, it's much more.
Warning, fixed rate break costs: If you fixed at 2% in 2021 and current rates are 6%, the lender is losing money on your loan. The break cost compensates them for this loss. On a $500,000 loan with 2 years remaining, the break cost could be $20,000-$40,000. Always get your break cost quoted in writing before deciding.
The Refinancing Process
- Check your current rate vs market, use our refinance calculator or talk to a broker
- Get your break cost quoted (if fixed), call your current lender
- Apply with the new lender, your broker handles the application, documents and valuations
- Receive unconditional approval, usually 3-7 business days
- Settlement, the new lender pays off the old one. Takes ~2 weeks. You don't have to do anything
- Done, your repayments are now lower, going to the new lender
Should You Refinance? Run the Numbers
Assuming ~$800 in switching costs. For exact savings with real rates, see your actual rates.
Want to see actual rates you'd qualify for?
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Debt Consolidation
Debt consolidation means rolling your other debts (credit cards, car loans, personal loans) into your home loan. The appeal: one lower repayment instead of multiple high-interest ones.
Mark has these debts:
Credit card: $12,000 at 20% → $240/month minimum
Car loan: $18,000 at 8% → $450/month
Personal loan: $8,000 at 12% → $320/month
Total: $38,000 in debts, $1,010/month in repayments
If Mark consolidates into his home loan at 6%:
Extra $38,000 on his mortgage → adds ~$228/month
Monthly saving: $782
Looks amazing, right? But here's the catch...
The trap: Mark's car loan was a 4-year term. His personal loan was 3 years. By rolling them into a 27-year mortgage, he's stretching short-term debt over decades. That $38,000 consolidated at 6% over 27 years costs him $72,400 in total. If he'd paid them off separately, total cost would've been about $49,500.
He saves $782/month in cash flow but pays $22,900 more overall. Consolidation makes sense for cash flow, but you MUST increase your mortgage repayments to offset it, or you're just kicking the can down the road.
When Consolidation Makes Sense
- You're drowning in high-interest debt and need breathing room
- You commit to maintaining (or increasing) your total repayments so the consolidated debt is paid off faster
- You close the credit cards and don't re-accumulate debt
When It Doesn't
- You consolidate but then rack up new credit card debt (the most common outcome)
- You just make minimum home loan repayments, stretching 3-year debt over 30 years
- The debt is small enough to pay off within 12 months anyway
Cash-Out Refinancing
Cash-out refinancing is when you refinance for more than you currently owe, and take the difference as cash. Lenders allow this up to 80% of your property's value (sometimes 90% with LMI).
Your property is worth $800,000. Your loan balance is $450,000.
80% of $800,000 = $640,000
You currently owe: $450,000
Maximum cash-out: $190,000
You refinance to a $640,000 loan and receive $190,000 in your account. Your repayments increase because the loan is now $640,000 instead of $450,000.
Common Uses for Cash-Out
- Renovations, increasing your property's value (and your equity)
- Investment property deposit, using equity to buy a second property (covered in depth in Module 5)
- Debt consolidation, paying off high-interest debts (see previous section)
- Business investment, funding a business venture (risky, you're putting your home on the line)
Tax tip: If you use cash-out funds for an investment purpose (e.g., buying an investment property), the interest on that portion of the loan may be tax-deductible. This is where loan structuring becomes important, always split the investment portion into a separate loan. We cover this in detail in Module 5.
Knowledge Check
You're on a variable rate of 6.30% and a new lender offers 5.89%. Switching costs are $800. On a $500k loan, approximately how long until you break even?
The biggest risk of consolidating a $30,000 car loan into a 28-year mortgage is:
Your property is worth $900,000 and you owe $500,000. The maximum you could typically cash out (at 80% LVR) is:
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Module 4 Complete!
You understand when and how to refinance. Next: using your equity to grow your portfolio.
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