To refinance a home loan you replace your existing mortgage with a new one, almost always with a different lender, to get a lower rate, better features, or access to your equity. The right time to do it is when your current rate sits materially above what new customers are being offered, when a fixed term is ending, or when your equity or income has improved enough to unlock a sharper deal.
That is the whole idea. The detail is mostly about whether the savings clear the costs, so let us walk through it.
What refinancing actually is
Refinancing is not topping up your loan or asking your bank for a discount, though that second one is a sensible first phone call. It is taking out a brand new home loan, using the proceeds to pay out the old one, and continuing your repayments under the new lender’s terms. The property does not change hands. Your borrowing does.
People refinance for three broad reasons: a lower interest rate, better features such as a genuine offset or fee-free redraw, or to release equity built up as the property value rose and the balance fell. Often it is a combination. The rate gets the headlines, but a proper offset account can be worth nearly as much over the life of a loan.
The loyalty tax is real
Here is the uncomfortable bit. Many lenders offer their sharpest rates to new customers and leave existing borrowers on something higher. The gap has a name now, the “loyalty tax”, and regulators have grumbled about it for years. The mechanism is simple: front-book rates win new business, back-book rates fund the discount, and the longer you stay put without checking, the further your loan can drift above the market.
None of this is malice. It is how the market is built. But it does mean the rate you signed up to three years ago is rarely the rate that lender is advertising this week, and the only way to know your position is to look.
Loyalty is a lovely quality in a friend and an expensive one in a mortgage.
When refinancing is worth considering
Refinancing is not free and not always worth it, so the trigger matters. Consider it seriously when one or more of these is true.
- Your rate is materially above current new-customer rates. A small gap may not justify the effort. A larger, sustained gap usually does.
- A fixed term is ending. When fixed loans roll to the lender’s revert rate, that revert rate is frequently uncompetitive. The end of a fixed period is a natural review point, and worth diarising before it arrives.
- Your equity or income has improved. Crossing below 80 per cent loan-to-value ratio (LVR) can open up sharper rates, and a stronger income can widen the field of lenders willing to take you on.
- You want to consolidate debt. Folding higher-rate debt into the mortgage can cut the headline interest rate, though it stretches that debt over a much longer term. We have written separately on debt consolidation and the trade-offs are real.
If none of these apply, the honest answer may be that staying put, or simply ringing your current lender to ask for a better rate, is the smarter move. A retention discount with no paperwork can beat a marginal refinance.
The costs to weigh
This is where refinances quietly fall apart. The savings are easy to picture and the costs easy to forget. Here is what to put on the other side of the ledger, with indicative Australian figures you should confirm for your own lenders.
| Cost | Typical range (last checked June 2026) | Notes |
|---|---|---|
| Discharge fee (old lender) | $150 to $400 | Charged to close out the existing loan. Almost always applies. |
| Establishment or application fee (new lender) | $0 to $600 | Frequently waived, especially alongside a cashback offer. |
| Valuation fee | $0 to $400 | Often absorbed by the new lender. Ask. |
| Lenders Mortgage Insurance (LMI) | Thousands, if it applies | Can be triggered again if your equity is below 20 per cent. This is the big one. |
| Government and title fees | Varies by state | Usually modest, but check your state’s land titles schedule. |
The LMI line is the one that catches people. If your equity has slipped below 20 per cent, or you are borrowing more, refinancing can re-trigger LMI you thought you had left behind, and that single cost can swallow years of rate savings. Below 20 per cent equity, do the sums very carefully before you move.
The rest are mostly a few hundred dollars each and often waived. The discipline is to total them, then work out how many months of rate savings it takes to break even. If that number is small, the case is strong. If it stretches past a year or two, think harder.
What about cashback offers
Lenders periodically dangle cashback to win refinances. They are real money and pleasant to receive. They should not drive the decision.
A cashback is a one-off. The interest rate is forever, or at least for the years you hold the loan. A slightly higher rate with a generous cashback can cost you more over three years than a sharper rate with none. Treat the cashback as a tie-breaker between two genuinely competitive offers, not as the reason to switch, and read the fine print, because some carry minimum loan sizes or clawback conditions if you leave early.
The refinance process, step by step
The mechanics are more straightforward than the decision. Here is the sequence.
- Check your current position. Find your current interest rate, your remaining balance, and your LVR. The LVR is your loan balance divided by the property’s current value. It determines which rates you can reach and whether LMI is in play. If you are unsure what you could borrow elsewhere, our guide on how much can I borrow is a useful starting point.
- Compare offers. Look at the rate, the comparison rate, the fees, and the features together, not the rate alone. You can compare refinance options to see how your current loan stacks up against the market.
- Apply to the new lender. You will provide income evidence, identification, and details of the existing loan. The new lender assesses the application and orders a valuation.
- The new lender pays out the old loan. Once approved, the new lender arranges to discharge your existing mortgage and pay it out directly. You sign the new loan documents.
- Settlement. The old loan closes, the new one begins, and your repayments shift to the new lender. From here it is business as usual, on better terms.
Start to finish, a refinance commonly takes a few weeks. A mortgage broker can do most of the legwork in steps two through five, compare a panel of lenders on your behalf, and is typically paid by the lender rather than by you. For many borrowers that is the path of least resistance.
How to compare properly
When you line up offers, weigh the whole package. The advertised rate is the start, not the finish.
The comparison rate folds most fees into a single figure and is more honest than the headline rate, though it assumes a standard loan size and term that may not match yours. Beyond the numbers, check the features you will actually use. A genuine offset account can quietly save more than a small rate difference, while a thin redraw and no offset may not suit an owner-occupier who keeps a cash buffer. If you are weighing certainty against flexibility, our piece on fixed versus variable home loans sets out the trade-off.
This is general information, not personal financial advice. Everyone’s loan, equity, and goals differ, so weigh the costs against the savings for your own situation, and consider talking to a licensed mortgage broker or adviser before you switch.
The bottom line
Refinancing is one of the few money moves where a few hours of attention can pay off for years, precisely because the loyalty tax rewards inertia. Check your rate and LVR, total the costs honestly, give the LMI threshold real respect, and compare the whole package rather than the headline number. If the savings clear the costs with room to spare, switching is usually worth it. If not, a quick call to your current lender might get you most of the benefit for none of the paperwork. Either way, the worst position is the one most borrowers are in, which is not having looked at all.