Refinancing Your Home Loan
Save thousands by switching to a better deal
IntuitiveCalc Team
Financial Content Specialist
Key Takeaways
- Potential savings: $3,000-$10,000+ per year on a typical Australian mortgage
- Break-even period: Most refinances pay for themselves in 6-12 months
- Best time to refinance: When rates drop 0.5%+ below your current rate
- Cashback offers: Currently $2,000-$5,000 from major lenders
- Process time: Typically 4-8 weeks from application to settlement
1. What is Refinancing and Why Do It?
Refinancing means replacing your current home loan with a new one, either with your existing lender or a different one. The goal is typically to get a better interest rate, access equity, change loan features, or consolidate debt.
With Australian home loan rates ranging from 5.89% to 6.99% in 2025, even a small rate reduction on a large loan balance can translate to tens of thousands of dollars saved over the life of your mortgage.
Main Reasons Australians Refinance
Lower Interest Rate
The most common reason. Even 0.5% lower saves $2,500/year on a $500k loan.
Access Equity
Use built-up equity for renovations, investments, or other major purchases.
Better Features
Get offset accounts, redraw facilities, or unlimited extra repayments.
Debt Consolidation
Roll high-interest debts into your lower-rate mortgage.
2. Signs It's Time to Refinance
Not sure if refinancing is right for you? Here are the key indicators that suggest it's time to shop around:
Your rate is 0.5%+ above market rates
If you're paying 6.5% and competitors offer 5.99%, that 0.51% gap on a $600,000 loan is $3,060/year in unnecessary interest.
Your fixed rate period is ending
When your fixed rate expires, you'll typically revert to a higher standard variable rate (SVR). This is the perfect time to negotiate or refinance.
You've built significant equity
If your LVR has dropped below 80% (through repayments or property value increase), you qualify for better rates and can skip LMI.
Your financial situation has improved
Higher income, better credit score, or more stable employment may qualify you for professional packages or better rates.
Your lender won't negotiate
Always ask your current lender for a better rate first. If they refuse to budge, it's time to vote with your feet.
3. How Much Can You Save? (Calculation Examples)
Let's look at real numbers to understand the potential savings from refinancing.
| Loan Balance | Current Rate | New Rate | Monthly Savings | Annual Savings |
|---|---|---|---|---|
| $400,000 | 6.50% | 5.99% | $137 | $1,644 |
| $500,000 | 6.50% | 5.99% | $171 | $2,052 |
| $600,000 | 6.50% | 5.99% | $205 | $2,460 |
| $750,000 | 6.50% | 5.99% | $256 | $3,072 |
| $1,000,000 | 6.50% | 5.99% | $342 | $4,104 |
Lifetime Savings Example
On a $600,000 loan with 25 years remaining, reducing your rate from 6.50% to 5.99% saves approximately $61,500 in total interest over the life of the loan. That's enough for a new car, a renovation, or years of retirement savings.
4. Break Costs and Exit Fees Explained
Before refinancing, you need to understand the costs involved to ensure you'll actually save money.
Costs from Your Current Lender
| Fee Type | Typical Cost | Notes |
|---|---|---|
| Discharge Fee | $150-$400 | Administrative cost to close your loan |
| Break Cost (Fixed Rate) | $0-$30,000+ | Only applies if breaking a fixed rate early |
| Early Repayment Fee | $0-$300 | Some older loans have this; newer loans usually don't |
Warning: Fixed Rate Break Costs
If you're on a fixed rate, breaking early can cost thousands. The break cost depends on how much rates have moved since you locked in, your remaining fixed term, and your loan balance. Always get a quote from your lender before proceeding.
Costs from Your New Lender
| Fee Type | Typical Cost | Notes |
|---|---|---|
| Application Fee | $0-$600 | Many lenders waive for refinances |
| Valuation Fee | $0-$300 | Often waived or covered by cashback |
| Settlement Fee | $200-$350 | Legal/administrative settlement costs |
| LMI (if LVR >80%) | $5,000-$50,000+ | Avoid by waiting until LVR drops below 80% |
| Government Fees | $200-$500 | Mortgage registration, title search |
Break-Even Calculation
Example: Is Refinancing Worth It?
| Loan balance: | $500,000 |
| Current rate: | 6.50% |
| New rate: | 5.99% |
| Annual savings: | $2,052 |
| Total refinancing costs: | ~$1,500 |
| Cashback received: | -$3,000 |
| Net cost after cashback: | -$1,500 (profit!) |
| Break-even period: | Immediate |
5. Fixed vs Variable When Refinancing
When refinancing, you'll need to decide whether to go with a fixed rate, variable rate, or a split loan.
Variable Rate
Best for flexibility and falling rate environments
- + Unlimited extra repayments
- + Access to offset account
- + Free redraw facility
- + No break costs
- - Rate can increase anytime
- - Budget uncertainty
Fixed Rate
Best for certainty and rising rate environments
- + Rate locked for 1-5 years
- + Predictable repayments
- + Protection from rate rises
- - Limited extra repayments
- - No offset (usually)
- - Break costs if exiting early
Pro Tip: Consider a Split Loan
A 70/30 or 50/50 split between fixed and variable gives you the best of both worlds: certainty on most of your loan, plus flexibility for extra repayments and offset benefits on the variable portion.
6. Cashback Offers - Are They Worth It?
Many lenders offer cashback incentives of $2,000-$5,000 to attract refinancers. But are they worth it?
Current Cashback Offers (2025)
| Lender Type | Typical Cashback | Minimum Loan |
|---|---|---|
| Big 4 Banks | $2,000-$4,000 | $250,000-$400,000 |
| Second-tier Banks | $2,000-$3,000 | $200,000-$300,000 |
| Online Lenders | $0-$2,000 | Varies |
Warning: Don't Chase Cashback Over Rate
A $4,000 cashback with a 6.2% rate is worse than a $2,000 cashback with a 5.9% rate. On a $500,000 loan, that 0.3% difference costs you $1,500/year. Over 5 years, you've lost $5,500 despite the higher cashback.
Cashback Calculation
Which offer is better?
Offer A
- Rate: 5.89%
- Cashback: $2,000
- Annual interest: $29,450
Offer B
- Rate: 6.19%
- Cashback: $4,000
- Annual interest: $30,950
Winner: Offer A - After 2 years, you're $1,000 ahead despite the smaller cashback. After 5 years, you're $5,500 ahead.
7. LVR and Equity Requirements
Your Loan-to-Value Ratio (LVR) is crucial when refinancing. It affects the rates you qualify for and whether you'll need to pay Lenders Mortgage Insurance (LMI).
How to Calculate Your LVR
LVR = (Loan Amount / Property Value) x 100
Example: $400,000 loan / $600,000 property = 66.7% LVR
LVR Tiers and What They Mean
| LVR | LMI Required? | Rate Impact | Recommendation |
|---|---|---|---|
| 60% or less | No | Best rates available | Ideal for refinancing |
| 60-70% | No | Excellent rates | Great position |
| 70-80% | No | Good rates | Go ahead and refinance |
| 80-85% | Yes | Higher rates + LMI | Consider waiting |
| 85%+ | Yes (expensive) | Limited lender options | Wait until LVR drops |
Property Value Increase = Lower LVR
If your property has increased in value since you bought it, your LVR may be lower than you think. For example, if you owe $480,000 on a property now worth $700,000 (originally $600,000), your LVR is now 68.6% instead of 80%.
8. Step-by-Step Refinancing Process
Research and Compare (1-2 weeks)
- Compare rates from at least 5-10 lenders
- Use comparison sites like Canstar, RateCity, Finder
- Note the comparison rate, not just the advertised rate
- Check cashback offers and fees
Negotiate with Your Current Lender (1 week)
- Call your bank's retention team with competitor offers
- Ask for a rate match or better
- Get any offer in writing
- Consider staying if they match - saves hassle
Apply for Pre-Approval (1-3 days)
- Choose 1-2 lenders and apply for pre-approval
- This gives you certainty before committing
- Pre-approval typically valid for 3-6 months
Submit Full Application (1-2 weeks)
- Provide all required documents
- Lender arranges property valuation
- Credit check completed
- Formal approval issued
Sign Loan Documents (1 week)
- Review and sign the loan contract
- Set up direct debit for repayments
- Notify your current lender of discharge
Settlement (1-2 weeks)
- New lender pays out old loan
- Title transferred to new lender's security
- New loan activated
- Cashback paid (usually within 60 days)
9. Documents You'll Need
Refinancing Document Checklist
Identity Documents
- Driver's license or passport
- Medicare card
- Birth certificate (if needed)
Income Documents
- 2 most recent payslips
- Employment letter
- Last 2 tax returns (self-employed)
- Last 2 years Notice of Assessment
Property Documents
- Current loan statement
- Property rates notice
- Building insurance certificate
Financial Documents
- 3-6 months bank statements
- Credit card statements
- Other loan statements
- Asset and liability statement
10. Common Refinancing Mistakes to Avoid
Extending Your Loan Term Back to 30 Years
If you've paid off 5 years and refinance to a new 30-year loan, you're adding 5 years of interest payments. Always match or reduce your remaining term, or maintain higher repayments.
Ignoring the Comparison Rate
A 5.89% advertised rate with $600/year fees might actually be worse than a 5.99% rate with no fees. Always compare the comparison rate.
Not Factoring in Break Costs
Breaking a fixed rate loan early can cost $5,000-$30,000+. Get a quote before assuming you can refinance cheaply.
Refinancing Too Often
Each refinance has costs. Switching every year rarely makes sense. Aim for every 2-3 years maximum.
Not Reading the Fine Print
Some loans have restrictions on extra repayments, offset accounts, or portability. Make sure the features match your needs.
11. When NOT to Refinance
Refinancing isn't always the right move. Here are situations where you should probably stay put:
Your Loan Balance is Small
If you owe less than $100,000, the savings from a rate reduction may not justify the costs. A 0.5% saving on $80,000 is only $400/year.
You're Selling Soon
If you plan to sell within 12-18 months, you may not recoup refinancing costs. The break-even period is typically 6-12 months.
You're on an Ultra-Low Fixed Rate
If you locked in at 2-3% during 2020-2021, you might still be paying less than current variable rates. Check before assuming refinancing is better.
Your Credit Score Has Dropped
If you've missed payments or taken on more debt, you may not qualify for better rates. Work on improving your credit first.
Your Income Has Decreased
Lenders assess serviceability based on current income. If you've changed jobs, reduced hours, or become self-employed, you may struggle to qualify.
12. Frequently Asked Questions
How long does refinancing take?
The typical refinancing process takes 4-8 weeks from application to settlement. Simple refinances can be faster (2-3 weeks), while complex situations (multiple properties, self-employed) may take longer.
Will refinancing affect my credit score?
Each loan application creates a credit enquiry, which can temporarily lower your score by 5-10 points. However, if you're rate shopping within a 14-day window, multiple enquiries are often treated as a single enquiry.
Can I refinance if I'm self-employed?
Yes, but you'll need 2 years of tax returns and financial statements. Some lenders offer "low doc" loans for self-employed borrowers with only 12 months of history, but rates are typically higher.
Should I use a mortgage broker?
Brokers can save you time by comparing multiple lenders, and their services are typically free (they're paid by lenders). However, some online-only lenders don't work with brokers, so you might miss their rates.
Can I refinance an investment property?
Yes, but investment loan rates are typically 0.2-0.5% higher than owner-occupied rates. You'll also need to provide rental income evidence and may face stricter LVR requirements.
How often should I review my home loan?
Review your rate annually. Even if you don't refinance, calling your lender to ask for a better rate can often result in a discount. Set a calendar reminder.
Related Calculators
IntuitiveCalc Team
This guide provides general information about refinancing home loans in Australia. Interest rates and lender policies change regularly. Always compare current offers and consider seeking advice from a licensed mortgage broker or financial adviser before making decisions.