Refinancing can save thousands — but it can also cost thousands if you do it at the wrong time or for the wrong reasons. This guide gives you a clear framework for deciding whether switching lenders makes financial sense.
The Core Question: Will You Actually Come Out Ahead?
Refinancing has costs — discharge fees, legal fees, new loan application fees, and potentially break costs if you're exiting a fixed rate. The question is whether the interest savings over your remaining loan term exceed these costs.
A simple rule of thumb: If you can save 0.5% or more per year and you plan to stay in the property for at least 2–3 more years, refinancing almost always makes financial sense.
If your rate is more than 1% above the best available rate for your loan profile, your broker should be knocking on your door.
The Refinancing Checklist
Use this checklist before initiating any refinance conversation with a lender or broker.
Know Your Current Rate and Loan Balance
Find your most recent loan statement and confirm:
- Current interest rate (and whether it's variable or fixed)
- Remaining loan balance
- Remaining loan term
- Monthly or fortnightly repayment amount
Check for Break Costs (Fixed Rate Loans)
If any portion of your loan is on a fixed rate, contact your current lender and ask for a break cost estimate. Break costs can range from $0 to tens of thousands of dollars depending on how much rates have moved since you fixed.
Breaking a fixed rate when rates have fallen significantly is expensive — the lender's lost income is passed directly to you.
Calculate the Comparison Rate, Not Just the Headline Rate
A headline rate of 5.89% might look better than 6.10%, but the comparison rate factors in fees. A loan with a low rate and high ongoing fees can cost more than a loan with a slightly higher rate and no fees.
Your broker will show you the true cost of each option over your expected loan term.
Assess Your Equity Position
Lenders calculate your Loan to Value Ratio (LVR) at refinance — not at your original purchase price. If your property has grown in value, your LVR has improved, which means:
- Better rates (most lenders tier rates at 60%, 70%, 80% LVR)
- No LMI on the new loan if LVR is under 80%
- Access to more lenders
Get a rough market appraisal before refinancing.
Review Your Credit File
Your credit score affects the rate and terms lenders will offer. Check your credit file via a free service (Equifax, Experian, or illion) before applying. Missed payments, defaults, or recent credit enquiries can affect your approval.
Factor In All Costs
Typical refinancing costs include:
| Cost | Typical Range |
|---|---|
| Discharge fee (existing lender) | $150–$400 |
| Government mortgage registration | $120–$200 |
| Conveyancer / legal fees | $800–$1,500 |
| New lender application fee | $0–$600 |
| Valuation fee | $0–$300 (often waived) |
Total: typically $1,200–$3,000 for a standard refinance.
Consider the Loan Features You Need
Don't just chase the lowest rate. Consider:
- Offset account (essential if you hold savings)
- Redraw facility
- Split loan capability
- Repayment flexibility
- Ability to make extra repayments without penalty
Switching to a lower-rate loan with no offset account could cost you more in interest over the loan life if you're actively using an offset today.
When NOT to Refinance
- When you're in a fixed rate period and break costs exceed the savings
- When you're planning to sell within 12 months
- When your income has changed and you may not meet serviceability at the new lender
- When you're very close to 80% LVR — the savings may not justify LMI costs
Making the Switch
The actual process of refinancing takes 4–8 weeks from application to settlement. Your new lender handles most of the process, and your broker manages the paperwork on your behalf.
LFG brokers run a full refinancing analysis for clients at no cost. We'll calculate your exact break-even point and model 3–4 alternative scenarios before recommending any action. Book a free call to find out whether now is the right time to switch.