With Australian mortgage rates constantly changing and lenders competing for business, refinancing your home loan could save you thousands of dollars. But when does it make sense to switch, and how do you navigate the process? This guide breaks down everything you need to know.

When Should You Consider Refinancing?

1. Your Rate Is No Longer Competitive

The Loyalty Tax

Existing customers often pay 0.5-1% more than new customers. If you haven't reviewed your rate in 2+ years, you're likely overpaying.

Current average rates (August 2025):

Loan Type	New Customer Rate	Existing Customer Rate
Variable (Owner-occupier)	5.89%	6.24%
2-Year Fixed	5.59%	5.89%

2. Your Financial Situation Has Improved

Better rates are available if:

Your income has increased significantly
You've paid down your loan to under 80% LVR
Your credit score has improved
You've paid off other debts

3. You Need Different Loan Features

Common Feature Changes

• Adding an offset account to save interest
• Switching from fixed to variable (or vice versa)
• Accessing equity for renovations or investment
• Consolidating debts into your mortgage
• Removing mortgage insurance (if equity > 20%)

When NOT to Refinance

Avoid Refinancing If:

✗ You're in a fixed rate period (break costs apply)
✗ Your loan balance is under $200,000 (savings minimal)
✗ You plan to sell within 12 months
✗ The rate difference is less than 0.3%
✗ You're about to apply for other credit

Calculate Your Break-Even Point

Before refinancing, calculate when you'll recoup the costs:

Refinancing Cost Example

Discharge fee (old lender)	$350
Application fee (new lender)	$400
Valuation fee	$300
Settlement fee	$450
Government fees	$200
Total Costs	$1,700

Break-even calculation:

Monthly savings: $208

Break-even time: $1,700 ÷ $208 = 8.2 months

Step-by-Step Refinancing Process

Step 1: Check Your Current Position (Week 1)

Gather Information

✓ Current interest rate and loan balance
✓ Recent home valuation or estimate
✓ Check your credit score (free from Equifax/Experian)
✓ Calculate your loan-to-value ratio (LVR)
✓ Review your current loan features

Step 2: Research and Compare (Week 2)

Don't just look at interest rates. Compare:

Comparison rate: Includes fees in the calculation
Fees: Annual, application, and exit fees
Features: Offset, redraw, extra repayments
Flexibility: Payment holidays, switching options
Customer service: Reviews and ratings

Step 3: Negotiate with Current Lender (Week 3)

Retention Call Script

"I've been offered [rate]% by [competitor]. I'd prefer to stay with you, but need a competitive rate. What's the best you can offer to keep my business?"

Success rate: 68% of customers get a rate reduction just by asking!

Step 4: Apply for New Loan (Week 4)

Documents you'll need:

Income Proof

• 2 recent payslips
• PAYG summary or tax return
• Employment letter

Financial Position

• 3 months bank statements
• Current loan statements
• Asset and liability summary

Step 5: Settlement Process (Weeks 5-6)

Once approved:

Sign loan documents
New lender orders valuation
Lawyers handle the settlement
Old loan is paid out automatically
Start making payments to new lender

Hidden Traps to Avoid

Common Refinancing Mistakes

Honeymoon rates: Check what rate applies after introductory period
Comparison rate tricks: Based on $150k loan - calculate for your amount
Package fees: Annual fees that offset rate savings
Restrictive terms: Limits on extra repayments or redraw
Cross-collateralisation: Linking multiple properties

Special Refinancing Situations

Breaking a Fixed Rate

Break costs can be substantial. They're calculated based on:

Remaining fixed term
Loan balance
Difference between your rate and current rates

Example Break Cost

$500,000 loan, 2 years remaining at 3.5%, current rate 6%: Break cost could exceed $25,000!

Equity Release Refinancing

Use increased property value to:

Fund renovations (potentially tax deductible)
Buy an investment property
Consolidate high-interest debts
Invest in shares or business

Refinancing Checklist

Before You Apply

☐ Calculate potential savings
☐ Check your credit score
☐ Get property valuation estimate
☐ Gather all required documents
☐ Research at least 5 lenders
☐ Call current lender for retention offer
☐ Read the fine print on new loan
☐ Calculate all costs including break fees
☐ Ensure timing doesn't clash with other credit applications

The Bottom Line

Refinancing can deliver significant savings, but it's not just about chasing the lowest rate. Consider the total package including fees, features, and flexibility. With rates high and competition fierce among lenders, now could be an excellent time to review your home loan.

The average Australian refinancer saves $3,000-5,000 per year. Even after costs, most borrowers break even within 6-12 months. Don't let complacency cost you thousands – take 30 minutes to review your loan today.

Pro Tip

Set a calendar reminder every 12 months to review your home loan. Markets change, and yesterday's great rate might be today's expensive loan. Stay proactive to keep your mortgage competitive.

Refinancing Your Home Loan: When and How to Save Thousands

Quick Refinance Savings Check