How to refinance a home loan in Australia.

When refinancing makes sense

A refinance is worth running when the working stacks up after fees. The rule of thumb most brokers use is around 0.3 per cent below your current rate, on a loan of at least a few hundred thousand dollars, with a borrower who plans to hold the property for at least three years. Below 0.3 per cent, the saving often does not cover the cost of switching. Above it, the maths usually works.

Rate is only one input. A refinance can also make sense when you want to restructure the loan itself. Splitting fixed and variable, adding offset, releasing equity for a deposit on a second property, or rolling consumer debt into a longer-term cheaper rate are all valid reasons that do not show up in a simple rate comparison. Equity release for a deposit usually pairs with an investment property loan structured to read cleanly at tax time. The right framing is whether the new loan does a better job of what you want the loan to do over the next few years, not just whether the headline number is lower this quarter.

A second category is service. If your current lender cannot resolve a basic redraw issue, or cannot produce a discharge statement without a fight, the cost of staying is not just the rate. It is the time and friction you pay every quarter. That cost is real but does not appear in any rate comparison.

When refinancing does not make sense

There are three situations where the refinance conversation should pause. The first is a fixed-rate loan with significant time left to run. Break costs can dwarf any rate saving, and the working has to include them. The second is a loan where the LVR has risen above 80 per cent since origination, either because the balance has not amortised or because the property has dropped in value. Lenders mortgage insurance on the new home loan can wipe out the saving on its own. The borrowing capacity calculator is a useful first check before any application goes in.

The third is when you are planning to sell within two years. The break-even on a refinance, after application fees, valuation, discharge, and potential LMI, is usually 18 to 30 months. If the property is going to market before then, the cost of switching does not amortise out. Stay where you are, accept the rate gap as the cost of the short horizon, and move on.

A fourth, quieter reason to pause is the state of your file. If your income has just changed, your employment status has just shifted, or your credit file has a recent enquiry or default, the timing is often wrong. A refinance application is a fresh credit assessment. Submitting from a weaker file than your last application sometimes produces a worse outcome than staying put and renegotiating with the existing lender.

Break costs on fixed-rate loans

Break costs are the most misunderstood number in Australian lending. The formula is not arbitrary, but it is not transparent on the lender's website either. When you fix a rate, the lender funds that contract in the wholesale market at a corresponding wholesale rate. If you exit early, the lender has to unwind that funding position. The break cost compensates the lender for the difference between what it agreed to receive from you and what it can now earn on the released capital.

In plain terms: break cost is roughly the remaining fixed term, multiplied by the gap between your fixed rate and the current wholesale rate for that remaining term, multiplied by your balance. When wholesale rates have risen since you fixed, the break cost is small or even zero. When wholesale rates have fallen, the break cost can run into many thousands. A $500,000 loan with three years left at a fixed rate that is now 1.5 per cent above wholesale can carry a break cost above $20,000.

The right way to handle break costs is to ask the lender for a written break-cost quote, valid for a defined window, before any refinance decision. Quotes can move substantially day to day because the wholesale rate moves. Decide based on the actual figure, not an estimate. Where the break cost is genuinely worth absorbing, our refinancing service walks through the working before any application is submitted.

Comparison rate versus headline rate

The headline rate is the bare interest rate. The comparison rate is the headline rate plus the standard fees, ongoing fees, and package fees expressed across a notional $150,000 loan over 25 years. The comparison rate is a single number that lets you put two different products on the same line.

The gap between headline and comparison is usually 0.1 to 0.3 per cent. A 5.99 per cent headline rate that becomes a 6.25 per cent comparison rate is a product with meaningful ongoing fees. A 5.99 per cent headline rate that becomes a 6.02 per cent comparison rate is close to fee-free. When the comparison rate is materially above the headline rate, the product is carrying baggage that will show up over the life of the loan.

One catch: the comparison rate assumes the standard $150,000 loan size. On a $1.5 million loan, fixed annual fees are a smaller share of the total, and the practical comparison gap narrows. The working still applies, but the number on the website is a reference point rather than a precise quote for your situation.

Cashback offers, read carefully

Refinance cashback offers from major lenders typically run from $2,000 to $4,000, sometimes higher on larger loans. The cash is real and lands within four to eight weeks of settlement. The question is whether the offer is genuine value or a marketing instrument designed to recover its own cost through the rate.

The test is straightforward. Take the cashback as a credit. Take the comparison rate gap against your current loan, multiplied by your balance, multiplied by three years. Add the new annual fees over that window. Compare against staying where you are.

Cashback is worth taking when the comparison rate remains competitive across that three-year view. It is worth ignoring when the only reason the deal looks good is the cashback, and the rate after the first year is mid-pack. Many lenders use cashback to attract refinances onto rates that drift upward through the second and third year. The cashback recovers in 18 months. The bad rate runs for the rest of the loan.

LMI implications when the LVR has shifted

Lenders mortgage insurance is paid by the borrower when the loan-to-value ratio sits above 80 per cent at origination. It is a one-off premium, capitalised onto the loan balance, and it does not transfer between lenders. If you refinance into a new lender and the new LVR is above 80 per cent, the new lender will require fresh LMI.

That matters in two situations. First, when the property has dropped in value and a refinance valuation comes back lower than expected. A $1.2 million purchase with a $960,000 loan was at 80 per cent. If the valuation now comes in at $1.1 million, the same balance is at 87 per cent and the refinance triggers LMI. Second, when the borrower has drawn on the equity in the meantime and the balance has not amortised below 80 per cent. The refinance calculator sizes the saving before fees so you can see whether the working still stacks up.

LMI on a $900,000 loan above 80 per cent LVR can run from $15,000 to $30,000. That is often enough to make the refinance uneconomic on its own. The right move in those cases is usually to negotiate hard with the existing lender for a rate match, accept a smaller saving, and revisit the refinance when the LVR has moved back below 80 per cent.

The step-by-step refinance process

A refinance through a broker runs in five stages, with realistic timing.

Stage one is the loan health check. The current rate, balance, features, fees, fixed versus variable mix, and any break cost are documented before any alternative is shortlisted. Stage two is the comparison. Two or three lenders from the panel are put on a single page against the current loan, on comparison rate, fees, cashback, and structure. Stage three is the working: the net position over three years, including any break cost, application fee, valuation, discharge, and LMI if applicable.

Stage four is application and approval. Documents are submitted to the chosen lender, usually two recent payslips, three months of transaction statements, the current loan statement, the rates notice, and ID. Self-employed adds two years of tax returns. Conditional approval typically arrives within a week. Valuation follows, then unconditional approval. Two to three weeks for the lender side is the standard, similar to a first home buyer loan in terms of paperwork rhythm.

Stage five is settlement and discharge. The new lender pays out the old, the discharge paperwork moves through the existing lender's settlement team, and the new loan goes live. Discharge timelines are the most variable part of the process and the part most outside the borrower's control. A broker chases the discharge so the borrower is not spending an afternoon on hold with their old lender.

Common reasons refinance applications do not proceed

Not every refinance gets to settlement, and the reasons are usually visible early. A valuation that comes in below the borrower's expectation is the most common single cause. Lenders use their own valuers and the figure is not negotiable. If the valuation crosses an LVR threshold or kills the saving, the application stops.

A second reason is serviceability under the new lender's assessment rates. Each lender assesses borrower capacity using a buffered interest rate, currently around 3 per cent above the actual rate. A borrower who serviced comfortably at origination may not service under current assessment rates, especially if living expenses, credit cards, or other commitments have grown. Sometimes the fix is straightforward, closing a credit card or paying down a car loan. Sometimes it is not.

A third reason is a fresh credit issue surfacing during the application. A late payment on a utility, a recent buy-now-pay-later default, or an undisclosed personal loan can change the lender's appetite. A fourth is a change in employment status that crossed a probation or PAYG-to-contractor threshold. The fix in those cases is usually to wait until the file rebuilds, not to keep submitting. The wider finance broking conversation usually flags these issues early, before any submission goes in.

Refinance is administrative work with a numerical answer at the end. Done deliberately, it produces a real saving and a cleaner loan structure. Done in haste or on the basis of a single headline number, it produces a churn cost with no gain. The point of this guide is to make the working visible before you decide.