When to Refinance Your Australian Home Loan

In Australia, refinancing is remarkably common — around 30–40% of new home loan applications are refinances, not new purchases. The competitive lending market means new customers consistently get significantly better rates than existing customers.

The "loyalty tax" is well documented: many major bank customers are paying 0.5–1.5% more than the best available rate for an equivalent loan. On a AU$600,000 loan, a 1% rate difference is AU$6,000/year in extra interest. Over 5 years that's AU$30,000 — a compelling reason to review your rate regularly.

The process is straightforward: apply to a new lender (or ask your current lender to match the best market rate), have the new loan approved, and settle. The new lender pays out the old loan directly.

Australian refinancing costs are typically lower than US closing costs:

Discharge fee from existing lender: AU$150–AU$400 New loan establishment fee: AU$0–AU$700 (many lenders waive this) Title transfer/mortgage registration: AU$150–AU$400 depending on state Break costs (fixed rate only): can be AU$0 to AU$30,000+ depending on the rate differential

For a variable rate loan, total switching costs are often AU$500–AU$1,500 — far lower than in the US or UK.

On a AU$500,000 loan, switching from 6.8% to 6.0% saves approximately AU$4,000/year. With AU$1,000 in switching costs, break-even is around 3 months. Even accounting for the effort involved, refinancing for a 0.8% rate improvement is almost always worthwhile on a typical Australian loan balance.

Many Australian lenders offer cashback incentives of AU$2,000–AU$6,000 for refinancing to them. These can be genuinely valuable — but read the fine print.

Common cashback conditions: — Minimum loan size (typically AU$250,000–AU$500,000) — Clawback if you refinance away within 12–24 months — Higher interest rate than the lender's non-cashback product — Application through specific channels only

If a cashback lender's rate is 0.2% higher than the best market rate, on AU$500,000 that's AU$1,000/year extra in interest. Over 24 months you've paid AU$2,000 extra to receive a AU$3,000 cashback — a net AU$1,000 gain, but smaller than it appears. Model the total cost including the rate premium before being swayed by the headline cashback number.

Despite the generally low switching costs, there are cases where refinancing isn't worth it:

You're on a fixed rate with a high break cost: If rates have fallen significantly since you fixed, your lender's break cost to exit may exceed any savings for years. Get a written break cost estimate before proceeding.

Your LVR is above 80%: If your property value has fallen or your loan is large relative to value, refinancing may require paying LMI again on the new loan — potentially negating the benefit.

You're very close to paying off the loan: Refinancing a small remaining balance incurs the same costs but produces minimal interest savings.

You have other complex loan features: Redraw balances, offset accounts, split loans, or guarantors can complicate refinancing and should be factored into your decision.