Is refinancing actually worth it?

Refinancing gets talked about as though it's obviously good, in the way that switching energy providers is obviously good. Mostly it is. But there are real costs, and a few situations where moving is the wrong call this year. Here's how to tell which you're in.

Step one: find your actual rate

Not the rate you signed up for - the rate you're paying today. It's on your most recent statement or in your banking app. A surprising number of people are out by half a percent or more, usually in the wrong direction.

Then look up what your own lender is currently advertising to new customers. That gap, if there is one, is the loyalty tax, and it's the reason this conversation exists.

Step two: work out the annual saving

Roughly, your saving is your loan balance multiplied by the rate difference.

• $500,000 balance, 0.4% difference → about $2,000 a year
• $700,000 balance, 0.6% difference → about $4,200 a year
• $900,000 balance, 0.8% difference → about $7,200 a year

That's interest only and ignores the loan reducing over time, but as a first pass it's close enough to tell you whether to keep reading. Our refinance calculator does the same sum with your numbers.

Step three: count the costs

This is the part that gets skipped. Typical costs of switching:

• Discharge fee from your current lender - commonly $150–$400
• Settlement or establishment fee at the new lender - sometimes waived to win your business
• Valuation - often paid by the lender, occasionally not
• Government registration fees - modest, but real
• Break costs if you're on a fixed rate - potentially thousands, and the one that decides it

Against that, plenty of lenders offer cashback or waive fees. That can offset the switching cost entirely - but don't let a cashback offer pull you toward a worse rate. A one-off $3,000 sweetener attached to a rate 0.3% higher is a bad trade on a large loan within two years.

Step four: the break-even

Divide your total switching cost by your monthly saving. That's how many months until you're genuinely in front.

Example. Switching costs $800. You save $250 a month. Break-even is a little over three months, and everything after that is yours. That's an easy yes.

Counter-example. You're two years into a five-year fixed rate and the break cost is $9,000. You'd save $200 a month. Break-even is nearly four years - longer than the fixed term has left. That's a no, at least for now.

When staying put is right

• You're on a fixed rate with a large break cost. Wait for the fixed term to end, then move. We can diarise it.
• You've only a few years left on the loan. The balance is small, so the saving is small, and the fixed costs of switching eat it.
• Your circumstances have changed for the worse on paper. Recently self-employed, on parental leave, or between jobs - a new lender assesses you fresh, and now may not be the moment.
• You have very little equity. If your loan is above about 80% of the property's value, you may pay LMI again, which usually kills the maths.
• Your current lender will match. Sometimes the threat of leaving is enough. We'll often ask them first - it's faster and cheaper for you, even though it earns us nothing.

Reasons to refinance that aren't about rate

Rate is the headline, not the whole story. People also refinance to release equity for a renovation or a second property, to add an offset account, to consolidate expensive debt, to split fixed and variable, or to move from interest-only back to principal and interest. Any of these can justify a move even when the rate saving alone wouldn't.

The short version

Find your real rate. Estimate the saving. Get the actual switching cost, including any break fee, in writing. Divide one by the other. If you're ahead within a year, do it.

If you'd rather not do that yourself, it's what we do all day, and we'll tell you honestly when the answer is no.