When Should You Refinance Your Home Loan?

Refinancing — switching your home loan to a new lender or product — can save Australian borrowers thousands of dollars per year. But it's not always the right move, and doing it at the wrong time can cost you money. Here's how to tell when it makes sense.

The clearest sign: you're paying the loyalty tax

Australian banks routinely offer their best rates to new customers while existing customers quietly pay more. This is sometimes called the "loyalty tax." If your loan is more than 2–3 years old and you haven't reviewed your rate, there's a good chance you're paying 0.3–0.8% more than you need to.

On a $600,000 loan, 0.5% extra costs you $3,000 per year — or $90,000 over 30 years. That's a significant penalty for doing nothing.

Good reasons to refinance

• Lower interest rate: The most common reason. Even 0.3% on a large loan adds up significantly.
• Fixed period ending: When your fixed rate expires, you'll revert to the lender's standard variable — often one of their worst rates. Refinancing at this point is almost always worth checking.
• Access equity: If your property has increased in value, refinancing can unlock equity for renovations, an investment property, or other purposes.
• Better features: An offset account, redraw facility, or more flexible repayment options — some lenders offer these where your current one doesn't.
• Debt consolidation: Merging high-interest personal loans or car loans into your mortgage at a lower rate can reduce your overall repayments (though be careful about extending short-term debt over 30 years).
• Change in circumstances: Divorce, new income, change of employment — sometimes your current loan structure simply no longer fits your life.

When refinancing might not be worth it

• Break costs on a fixed loan: If you're mid-fixed-term and rates have dropped, break fees can easily be $10,000–$30,000 — often wiping out years of savings from a lower rate.
• Small loan balance: The costs of refinancing (valuation, discharge fees, new loan setup) typically run $500–$1,500. If your loan balance is small, the savings may not justify the cost.
• You're close to paying it off: In the early years of a loan, most of your repayment is interest. In the later years, it's principal. Refinancing resets some of that amortisation, which can mean paying more interest overall despite a lower rate.
• Your financial situation has weakened: If your income or credit score has deteriorated since your original loan, you may not qualify for the rates you're targeting — and a declined application hurts your credit file.

How to calculate if it's worth it

The basic formula is:

Monthly saving = (current rate − new rate) × loan balance ÷ 12

Then divide your refinancing costs by the monthly saving to find your break-even point — the number of months before you start actually saving money. If you plan to stay in the property longer than the break-even, refinancing makes sense.

For example: if refinancing costs $1,200 and saves you $300/month, you break even in 4 months. Very much worth it.