Refinancing means replacing your current home loan with a new one, often with a different lender, to secure better terms. It can be a genuinely good move in the right circumstances, but it also comes with costs and effort, so it's worth understanding when it tends to make sense.
Common Reasons People Refinance
- To secure a lower interest rate than their current loan
- To access loan features they don't currently have, such as an offset account
- To consolidate other debts into a single loan
- To access equity built up in the property for renovations or other purposes
- To switch between fixed and variable rates
Signs It Might Be Worth Comparing Lenders
It's generally worth reviewing your loan if you notice your interest rate has drifted higher than rates being advertised for new borrowers, if your circumstances have changed significantly (such as a pay rise or paid-off debt improving your position), or if you simply haven't reviewed your loan in several years. Loyalty doesn't always come with the best rate, so periodic comparison is a reasonable habit.
Costs to Weigh Up Before Refinancing
Refinancing isn't free, and the costs can offset some or all of the potential savings if you're not careful. Common costs include:
- Discharge fees from your current lender
- Application, valuation or settlement fees with the new lender
- Lenders Mortgage Insurance again, if your loan-to-value ratio with the new loan is still above 80%
- Break costs, if you're exiting a fixed-rate loan early
A useful approach is to estimate how long it would take for the interest savings to outweigh these upfront costs — often called the "break-even point" — and consider whether you're likely to stay in the loan long enough to benefit.
Comparing the Numbers
Before refinancing, it helps to compare your current repayment against what a new rate and loan structure would look like. The Smarter Mortgage Calculator lets you model different rates and terms side by side, which can help you see whether a prospective new loan genuinely improves your position once fees are accounted for.
When Refinancing Might Not Be Worth It
If you're planning to sell or pay off your loan soon, if the rate difference is very small, or if fees and break costs would outweigh the savings, refinancing may not be worthwhile right now. It's also worth checking whether simply asking your current lender to review your rate could achieve a similar outcome without the cost and hassle of switching entirely.
- Refinancing can lower your rate, add features, or access equity, but isn't free.
- Weigh discharge, application and possible LMI costs against the potential savings.
- Work out the break-even point before deciding whether refinancing makes sense.
- Sometimes asking your current lender for a better rate is worth trying first.
Compare loan scenarios instantly using the Smarter Mortgage Calculator.
This article provides general information only and does not constitute financial, credit, legal or tax advice. Lending criteria, fees and loan conditions vary. Consider speaking with a lender, mortgage broker or appropriately qualified professional before making financial decisions.