Australians refinance a lot. Recent lender and settlement data shows more than 450,000 home loans were refinanced in 2023, an increase of about 11% on the previous year, and the typical borrower now refinances around 5 to 6 years after buying. Refinancing can easily save hundreds of dollars a month if you move at the right time. If you move too early or for the wrong reasons, fees and extra interest can wipe out the benefit.
This guide focuses on clear, data backed signals that it is time to refinance your home loan in Australia, and the red flags that mean you should probably wait.
Clear Signals It Is Time To Refinance
Your Home Loan Rate Is 0.5% To 1% Above Current Market Deals
One of the strongest signals is that your current interest rate is clearly higher than what similar borrowers are paying. Comparison data regularly shows older loans sitting 0.5% to 1% above sharp new offers for the same type of borrower.
MoneySmart modelling shows that even a 0.5% rate cut on a standard owner occupier loan can reduce repayments by hundreds of dollars a year. On a 600,000 dollar mortgage, a 1% reduction can easily save more than 300 dollars a month, or about 3,600 dollars a year, before costs. If you see that much of a gap between your rate and current deals, refinancing is worth a close look.
You Have At Least 20% Equity And Can Avoid Paying LMI Again
Equity is the next key trigger. Once your loan balance is at or below 80% of your property value, you are usually in a position to refinance without paying lenders mortgage insurance again. That 20% equity level matters because LMI on a large loan can run into tens of thousands of dollars. If property prices and your extra repayments have pushed your loan to value ratio below 80%, you have more bargaining power and more lenders willing to compete for your business.
Your Fixed Rate Is Ending And You Are Rolling To A Higher Variable Rate
Many borrowers fixed their rates when interest costs were lower. As those fixed periods expire, lenders usually roll them to a higher revert rate. MoneySmart and comparison sites both treat this as a natural decision point. If your fixed rate is due to end in the next 3 to 12 months, it makes sense to line up alternatives so you do not quietly slide onto an uncompetitive variable rate.
Refinancing while you are still inside the fixed period often triggers break costs, which regulators warn can be very high if market rates have fallen since you fixed. Refinancing a home loan at or just after the end of the fixed term is usually far cleaner.
Your Income Or Credit Score Has Improved Since You Took The Loan
Lenders like Empower Money assess refinance applications using your current income, debts and credit history. If your pay has risen, your other debts have fallen or your credit score has improved since you first took the loan, you may now qualify for a sharper rate than before. That can more than offset moderate switching costs.
Your Current Loan Features Do Not Match How You Use Your Money
Refinancing is not only about rates. If you are paying a higher rate for features you do not use, you are wasting money. A common example is a full package with annual fees, a credit card and multiple accounts when all you really need is a simple loan with a redraw facility.
The reverse can also be true. If you now keep a healthy balance in an everyday account, moving to a loan with a full offset account can cut the interest you pay each day. If the features on your existing loan do not line up with how you handle your cash flow, that is another prompt to review your options.
To sum up, it is worth running refinance rate numbers when:
- your interest rate is clearly above competitive offers
- you have 20% or more equity
- your fixed rate is close to expiry
- your financial profile has improved
- or your current loan structure no longer fits how you manage your money.
Red Flags That Mean You Should Wait To Refinance
High Break Costs Make Switching A Fixed Rate Too Expensive
If you are still inside a fixed rate term, your lender may charge a break cost if you leave early. These costs are based on how much market rates have moved since you fixed and can be thousands of dollars when rates have dropped. MoneySmart specifically warns that fixed loan break fees may be very high. In many cases, those fees will more than cancel out the interest savings from a small rate cut.
The Rate Drop Is Too Small To Cover Fees Within 6 To 12 Months
Refinancing has real costs. Typical borrowers pay a discharge fee to the old lender, application and settlement fees to the new lender and, in some cases, valuation and government charges. Industry estimates put the total for many refinances in the 600 to 1,000 dollar range where LMI is not involved.
If the rate cut you are chasing only drops your repayment by 40 or 50 dollars a month, you can see the problem. It might take several years just to break even. Several advisers suggest that a refinance is more attractive when you can recover costs in 6 to 12 months and then keep saving for the rest of the loan.
Your Equity Is Under 20% And A Refinance Would Trigger New LMI
If your loan is above 80% of your property value, a new lender will usually require LMI again. On a large mortgage, that can be many thousands of dollars. A small rate cut on top of a new LMI premium is rarely a good trade. In that situation, you are often better off focusing on extra repayments or offset use with your current lender until your equity position improves.
Refinancing Would Stretch Your Loan Term And Total Interest
Resetting your loan term to 30 years when you have already paid for several years is a common trap. The new repayment looks smaller, but you are now paying interest over a longer period. Modelling from lenders and comparison sites shows that restarting a 25 year loan back out to 30 years can add tens of thousands of dollars in extra interest, even at a slightly lower rate.
Unless you are deliberately shortening the term by keeping the old repayment amount, any refinance that significantly lengthens the remaining term deserves extra scrutiny.
Your Income Or Credit History Is Too Unstable Right Now
If your income is irregular, you have recent late payments or your credit score has taken a hit, refinancing can be harder and more expensive. Lenders may either decline the application or approve you at a higher rate than the headline offers you see advertised.
In that case, your first priority is usually to stabilise your financial position. That can mean working with your current lender on better pricing, using hardship options if you are under real pressure, and cleaning up your credit record before you try to move.
How To Run The Numbers Before You Refinance
Refinance timing is not guesswork. A simple process helps you check whether switching leaves you ahead in real dollars.
Add Up All Switch Costs Discharge Fees Break Costs And Setup Fees
Start by collecting the fine print on both the old loan and the potential new one. You need to know the discharge fee on your current mortgage, any fixed rate break cost and the application, valuation, settlement or annual package fees on the new loan. That gives you a total switching cost figure.
Estimate Monthly Savings At The New Interest Rate
Use a home loan calculator to compare your current repayment with the repayment at the new rate for the same remaining term. Focus on dollars, not just the percentage change.
Work Out Your Break Even Point In Months
Once you know total costs and monthly savings, you can calculate how long it takes to recover the money you spend on the refinance.
Model Different Loan Terms To See Lifetime Interest Costs
Finally, check what happens if you keep the term the same or make it shorter instead of stretching it back out.
You can pull this together in one structured sequence:
- Write down your current balance, rate, repayment amount and remaining term, plus any ongoing loan or package fees.
- Confirm all switch costs from both lenders, including any break fee and new application and government charges, then total them.
- Use a refinance calculator to compare current and proposed repayments at the same remaining term and note the monthly savings.
- Divide your total switching cost by that monthly saving to get your break even time in months, then model a scenario where you keep repayments at the old level to see how much faster you could clear the debt.
If you can recover all costs in around 6 to 12 months and your total interest over the life of the new loan is lower while keeping or shortening the term, the refinance is more likely to be worthwhile. If the break even period is long or the lifetime interest cost is higher, it is usually a sign that you should negotiate with your existing lender or wait.
Frequently Asked Questions About Refinance Timing
How big should the rate gap be before I refinance my home loan?
Many borrowers look for at least a 0.5% to 1% reduction in their rate, combined with a break even period under about 12 months. On large loans even a smaller cut can be enough if the dollar savings are significant.
How often do Australian borrowers typically refinance their home loan?
Settlement data indicates that many Australians refinance roughly every 5 to 6 years, commonly when fixed rates expire or when existing loans drift well above current market deals.
Is it worth refinancing if I have less than 20% equity?
Often no. If your equity is below 20%, you are likely to pay lenders mortgage insurance again on the new loan, and that cost can easily cancel out the benefit of a modest rate reduction.
What fees and costs should I factor in before I decide to refinance?
Include discharge fees, any fixed rate break cost, new application or settlement fees, valuation fees, government mortgage registration costs and any new LMI premium. Cashback offers can help offset these but should never distract from the true long term cost.
Should I refinance as soon as the RBA cuts the cash rate?
Not automatically. Lenders do not always move rates in line with the cash rate. Wait to see how your lender responds, compare actual market rates, then run a full cost and benefit calculation before you decide.
Sources
- https://moneysmart.gov.au/home-loans/switching-home-loans
- https://www.ratecity.com.au/home-loans
- https://www.canstar.com.au/home-loans
- https://www.pexa.com.au/insights
- https://www.rba.gov.au/statistics/cash-rate
- https://www.mozo.com.au/home-loans
- https://www.sbs.com.au/news
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