A refinance saves money only if the rate drop, multiplied by your remaining loan balance and term, exceeds the switching costs. This calculator does that comparison directly — current loan vs new loan, costs included, real net saving.
How a refinance saves money
Refinancing replaces your current loan with a new loan from a different lender (or the same lender on different terms). The new loan pays out the old one at settlement. You're not borrowing more money — you're swapping the contract under which the existing balance sits.
The saving comes from a lower interest rate. On a $600,000 loan, a 0.50% rate reduction (e.g., 6.50% → 6.00%) saves roughly $200/month, or $72,000 over a 30-year term. After the typical $1,000–$1,500 of switching costs, the payback is around five months.
The saving doesn't come from a longer term. If you reset to a fresh 30 years on a 25-year remaining loan, your monthly payment drops further — but only because you're spreading the same principal over more years. Total interest paid actually goes up, even at the lower rate.
When refinancing pays off
The simple rule: a 0.25% rate drop usually pays back in 12 months. A 0.50% drop pays back in under 6 months. Below 0.25%, the maths gets tight.
| Loan balance | Rate drop | Monthly saving | Payback (with $1,200 fees) |
|---|---|---|---|
| $250,000 | 0.25% | ~$38 | ~32 months |
| $250,000 | 0.50% | ~$76 | ~16 months |
| $500,000 | 0.25% | ~$76 | ~16 months |
| $500,000 | 0.50% | ~$152 | ~8 months |
| $1,000,000 | 0.25% | ~$152 | ~8 months |
| $1,000,000 | 0.50% | ~$305 | ~4 months |
The bigger the loan, the smaller the rate drop you need to justify the switch. On a $1m loan, even a 0.15% drop pays back inside 18 months.
What to compare on the new offer
The advertised rate is the headline. Watch for:
The comparison rate. Australian lenders are required to display this. It bundles most fees into an effective annual rate. Two loans at the same 6.00% advertised rate can have comparison rates of 6.10% and 6.40% depending on annual fees. Don't switch from a no-fee 6.10% loan to a 6.00% loan with $400/year package fees and call it a saving — the comparison rate will tell you it's actually not.
Annual or package fees. A $300–$400 annual fee can erase 0.10–0.15% of the apparent rate saving. Some packages bundle offset and credit cards in exchange for the fee — only worth it if you actually use those features.
Offset rules. Some lenders advertise "offset available" but cap it at $5,000 or charge a margin on the rate when you activate the offset. Check the product disclosure statement, not the advertising.
Rate type and term. Variable rate with no fixed-period commitment? Or 2-year fixed with break costs? Refinancing into a fixed loan locks in the new rate but limits future flexibility.
LVR threshold pricing. Some lenders give the headline rate only to borrowers under 60% or 70% LVR. Above the threshold, the rate creeps up by 0.10–0.30%. Make sure you qualify for the rate quoted.
The hidden costs people miss
Beyond the obvious switching costs ($1,000–$1,500 typical):
LMI re-charge. If your LVR is above 80% and the property hasn't appreciated, the new lender will require LMI. LMI on a $600k loan at 85% LVR is roughly $9,000–$15,000 — instantly wipes out years of rate saving. If you're close to 80%, get the property valued before refinancing.
Break costs on fixed loans. Refinancing during a fixed period almost always triggers break costs. In a falling-rate market, these can be tens of thousands. Ask your current lender for a break cost quote (free) before signing anything with a new lender.
Re-establishing offset balances. If your current loan has a meaningful offset balance and the new loan has a setup gap, you might lose offset benefit for 1–2 weeks during the switch. Plan the offset transfer carefully.
Property reports / valuations. Most lenders pay for these; some don't. Confirm before applying.
Resetting the term: the trap
Most refinances default to a fresh 30-year term. That feels like a longer monthly cashflow runway, but it costs you in total interest. Compare the two strategies on a $500,000 balance with 25 years remaining:
| Strategy | New term | New monthly | Total remaining interest |
|---|---|---|---|
| Refinance, keep 25-year term | 25 yrs at 5.99% | ~$3,221 | ~$466,000 |
| Refinance, reset to 30 yrs | 30 yrs at 5.99% | ~$2,996 | ~$579,000 |
| Refinance to 30 yrs, manually pay $3,221/month | 30 yrs at 5.99% | ~$2,996 minimum, $3,221 actual | ~$466,000 (same as 25-yr) |
The third row is the win: low minimum (cashflow safety), high actual repayment (no interest cost). Most lenders will accept the higher repayment as a voluntary extra without charging anything.
The simple decision flow
- Get a current rate quote from your existing lender first. Many will price-match a competitor offer to keep you. If they drop by 0.20%+, refinancing isn't necessary.
- Get 2–3 competing offers with full comparison rates and any package fees disclosed.
- Run the maths in the calculator above. Include all switching costs.
- Check break costs if you're on a fixed loan — sometimes the answer is "wait 8 months until fixed period ends."
- Confirm LVR is below 80% to avoid LMI surprise.
- Ask your current lender to discharge in writing only after the new loan is unconditionally approved.
For a deeper comparison of multiple offers side-by-side, use the Loan Comparison Calculator. For modelling repayment strategies on the new loan, the Mortgage Repayment Calculator.
Frequently asked questions
When does refinancing actually save money?
Roughly: if the new rate is more than 0.25% lower than your current rate and you plan to stay in the loan more than ~24 months, refinancing usually wins after fees. The breakpoint shifts with loan size — on a $1m loan a 0.10% rate drop is meaningful; on a $250k loan it barely covers the switching costs. Use the calculator above to model the exact payback period.
Should I extend the term back to 30 years when I refinance?
It cuts your monthly repayment but increases total interest paid over the life of the loan. Extending a 25-year remaining loan back to 30 years lowers the headline repayment by 5–10%, but you'll pay the lender for an extra 5 years of interest. The cleanest approach: refinance to 30 years for the lower minimum, then voluntarily pay the higher amount each month (or set extra repayments) to clear the loan in your original timeframe with the new lower rate. You get the rate saving without the extension cost.
What are the typical refinance costs in Australia?
Discharge fee from old lender: $250–$400. Application/establishment fee with new lender: $0–$700, often waived under refinance promotions. State government title fees (deregistering and re-registering the mortgage): $200–$400 combined depending on state. Valuation fee: usually $0 (lenders typically pay). Settlement agent / conveyancer if needed: $0–$500. Total typical out-of-pocket: $500–$1,500. LMI is rare unless your LVR has crept above 80% — see the LVR caveat below.
Will I have to pay LMI again?
Possibly. LMI is paid when the loan-to-value ratio exceeds 80%. If your property hasn't appreciated and you're still above 80% LVR, the new lender will require LMI on the refinanced loan — and it's not transferable from the old loan. Many borrowers find their property has appreciated enough that LVR is now safely below 80% and LMI doesn't apply. Get a current valuation before assuming.
Can I refinance during a fixed period?
Yes, but you'll usually pay break costs. The break cost is calculated on the difference between your fixed rate and the lender's current wholesale rate, multiplied by the remaining fixed term and the loan balance. In a falling-rate environment, break costs are large; in a rising-rate environment, break costs are often near zero or even waived. Ask your current lender for a break cost quote before deciding — quotes are normally free and valid for a few days.
How does refinancing affect my credit score?
A refinance creates a new credit enquiry on your file, which has a small short-term impact. The discharged loan stays on your credit history as a paid-off account (positive). Long-term, refinancing has minimal credit impact unless you do it repeatedly in a short window — multiple refinance enquiries within 12 months can flag you as a 'serial refinancer' and some lenders price for that risk.
What's a cashback refinance?
Some Australian lenders offer cash incentives ($2,000–$5,000) for refinancing onto their product. Useful if the rate is competitive and the lender's product features suit you, but check whether the rate is genuinely competitive — sometimes the cashback is funded by a slightly higher rate. Run both scenarios in the calculator: lower rate + no cashback vs slightly higher rate + cashback. The lower rate usually wins after 2–3 years; the cashback wins if you plan to refinance again soon (which can damage credit, see above).
Should I consolidate other debt into the refinance?
Mathematically attractive: rolling a 14% credit card or 8% personal loan into a 6% home loan reduces the interest cost. But you're spreading short-term debt over a 25–30 year term, so the total interest paid on the rolled-in balance is much higher unless you actively pay it down faster than the home loan minimum. Consolidate only if you have the discipline (or set up an automatic extra repayment) to clear the consolidated portion in 3–5 years.
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Last updated: 30 April 2026