How Much Does It Cost to Refinance a Home Loan in Australia?
Key Takeaways:
- Refinances can cost roughly $500 - $2,000 up front in Australia
- If you leave a fixed rate loan early, your lender can charge you
- When you should finance
- When you should not finance
Refinancing a home loan in Australia can cost around $500 to $2,000 upfront for a straightforward refinance. Your actual cost depends on your lender, loan type, property and circumstances.
A fixed-rate loan can cost more. Break costs can add thousands of dollars and may change whether refinancing makes financial sense.
The real question isn't what refinancing costs. It's whether the potential savings justify the cost of switching.
How Much Does It Cost to Refinance a Home Loan?
There is no single cost to refinance a home loan. Some fees are common, while others depend on your lender, loan and circumstances.
For a straightforward variable-to-variable refinance, the costs may be relatively modest. Fixed-rate loans can involve additional break costs that significantly change the calculation.
Common refinancing costs include:
- Discharge fee: Your current lender may charge a fee to discharge your existing loan.
- Government charges: Charges vary by state or territory and may apply depending on your circumstances.
- Application fee: The new lender may charge a fee to process your application.
- Property valuation: The lender may require a valuation of your property.
- Fixed-rate break cost: This may apply if you leave a fixed-rate loan early.
- Other costs: Settlement or lender-specific costs may also apply.
These costs do not apply in exactly the same way to every refinance. Some lenders may waive certain fees, while others may charge them.
The best place to start is with your actual loan documents and current lender. You can also learn more about refinancing your home loan and the options available to you. A general estimate cannot account for your individual circumstances.
Discharge fees
Your current lender may charge a discharge fee when you close your home loan.
This covers the administrative process involved in releasing the lender's mortgage from your property. Your lender can confirm the applicable fee before you refinance.
Government charges
Government charges may apply when a mortgage is discharged or registered.
These charges vary between Australian states and territories and are separate from fees charged by your lender. Check the relevant state or territory authority for current charges before you make your decision.
Application and establishment fees
Your new lender may charge an application or establishment fee when setting up your replacement loan.
Some lenders waive these fees as part of their offers, while others still charge them. Check the lender's current fee schedule when comparing your options.
Property valuation fees
A new lender may require a valuation before approving your refinance.
The valuation helps the lender assess your property's current value. It can also affect your loan-to-value ratio and the lending options available to you.
Some lenders cover the valuation cost. Others may pass it on to you.
Other costs
Depending on your circumstances, you may also need to consider settlement-related charges, ongoing package fees or other lender-specific costs.
For example, imagine a refinance with a $350 discharge fee, $600 in new lender fees and a $300 valuation. That would put the upfront cost at $1,250.
The next question is whether your expected savings can recover that $1,250.
The total switching cost matters more than any single fee.
Fixed-Rate Break Costs Can Change the Calculation
Fixed-rate borrowers need to look at their exit costs before comparing new loans. A break cost can have a much bigger impact than standard refinancing fees.
When you repay a fixed-rate loan before the fixed period ends, your lender may charge a break cost. The amount can depend on factors such as your loan balance, remaining fixed period and market conditions.
For example, you may have a $500,000 fixed-rate loan with 20 months remaining. A lower rate with another lender could look attractive, but a significant break cost could reduce the benefit of switching.
Ask your current lender for a break-cost estimate before making a decision.
A lower interest rate does not automatically make refinancing worthwhile.
How Much Could You Save by Refinancing?
A lower interest rate can reduce your interest costs. But the rate difference alone does not tell you how much you will save.
Your loan balance, repayments, fees and remaining term all affect the result.
For example, a 0.50 percentage-point reduction on a $700,000 balance represents roughly $3,500 in annual interest difference before other factors are considered. You can use mortgage calculators to work through your own numbers. This is still a simplified calculation, and your actual savings can differ depending on how your loan is structured and repaid.
Compare the whole loan
Before switching, compare:
- Current loan balance
- Current interest rate
- Current repayments
- Proposed interest rate
- Proposed repayments
- Total refinancing costs
- Remaining loan term
- Expected loan holding period
- Any cashback or other incentives
A refinance can look attractive at first but deliver little benefit after switching costs.
On the other hand, a smaller rate reduction can still create meaningful savings on a larger loan balance.
What matters is the overall outcome once the costs, savings and loan structure are considered.
How to Calculate Your Refinancing Break-Even Point
The break-even point shows how long your savings could take to recover the upfront cost of refinancing.
The simple formula is:
Break-even period = Total refinancing costs ÷ Monthly savings
For example, suppose refinancing costs $1,250 and your estimated monthly saving is $162.50.
$1,250 ÷ $162.50 = 7.7 months
You would recover the upfront cost after about eight months in this simplified example.
Your loan balance matters too. A larger balance can produce greater savings from the same rate reduction, while a smaller balance may make refinancing costs harder to recover.
Your timeframe is also important. If you plan to sell soon or refinance again shortly after switching, you may not have enough time to reach your break-even point.
A break-even calculation is a useful guide, but it is not a guarantee of future savings.
When Does Refinancing Make Sense?
Refinancing can make sense when it improves your overall lending position. If you're unsure whether it's the right time, learn more about when to refinance your home loan. The potential benefit is not limited to a lower interest rate.
You could achieve meaningful savings
Refinancing may be worth considering when the expected savings comfortably exceed the switching costs.
The potential benefit can be greater with a larger outstanding balance, but the full cost of switching still needs to be considered.
Your circumstances have changed
Your income, expenses, equity or financial goals may have changed since you took out your original loan.
A loan that suited you several years ago may no longer fit your needs. Your home loan should reflect where you are now, not just where you were when you first borrowed.
You want a better loan structure
You may want an offset account or redraw facility. You may also want to change how your loan is split between fixed and variable lending.
The right structure can matter just as much as the interest rate.
You want to access equity
Refinancing may form part of a broader plan to access available equity.
You could use equity for a renovation or another property purchase. If you're considering using equity as part of an investment strategy, using home equity to invest needs to be assessed alongside your borrowing capacity and overall lending position.
Your future plans have changed
Perhaps you're planning to upgrade your home or purchase an investment property.
Your future borrowing needs can affect which lender and loan structure make sense today.
The loan you choose should fit your circumstances and support what you want to do next.
When Might Refinancing Not Be Worth It?
Refinancing is not automatically beneficial. Sometimes the costs, timing or new loan structure outweigh the potential savings.
High fixed-rate break costs: A large break cost can reduce or eliminate your expected interest savings.
Small potential savings: A lower rate may not create enough savings to justify the switching costs, particularly with a smaller loan balance.
Short remaining loan term: You may not have enough time to recover the cost of switching if your loan is close to being repaid.
You're planning to sell soon: Selling before reaching your break-even point can limit the benefit of refinancing.
You're extending the loan term: A longer loan term can reduce your monthly repayments but may mean paying more total interest over the life of the loan.
Your LVR has changed: Your loan-to-value ratio can affect your refinancing options. If your equity has fallen, you may also face LMI depending on the new lender and loan structure.
Before switching, consider the entire lending position rather than focusing on one number.
Don't Judge a Refinance by the Interest Rate Alone
A lower rate can shrink your interest bill. It says nothing about whether the new loan actually fits your situation.
An offset account, for example, can reduce the balance used to calculate interest, while a home loan redraw facility gives you access to eligible additional repayments subject to the lender's conditions.
It may not make sense to give up a useful feature simply to secure a lower rate.
You should also think about what comes next. You may want to buy another property, renovate or invest, and the lender and loan structure you choose today could affect those plans.
When comparing loans, consider:
- Offset and redraw features
- Loan structure and flexibility
- Available equity
- Future borrowing plans
- Investment plans
- Total loan costs
- Your overall lending strategy
This is where a refinance review can be useful.
Amara Mortgage Brokers takes a strategy-first approach, looking at your goals and future plans before recommending a lending pathway. The focus is on understanding whether the change works for your broader financial position, not just finding a lower rate.
Refinancing Cost Checklist
Before deciding whether to refinance, gather the numbers below. A clear comparison starts with accurate information.
Your current loan
☐ Current loan balance
☐ Current interest rate
☐ Remaining loan term
☐ Current monthly repayment
☐ Fixed or variable rate
☐ Existing offset or redraw features
Costs of leaving
☐ Discharge fee
☐ Fixed-rate break cost
☐ Government charges
☐ Other lender fees
Costs of the new loan
☐ Application or establishment fee
☐ Property valuation cost
☐ Settlement costs
☐ Cashback or incentives
☐ Ongoing package fees
Your expected benefit
☐ Proposed interest rate
☐ Expected monthly saving
☐ Total refinancing cost
☐ Estimated break-even period
☐ Expected loan holding period
Your bigger picture
☐ Future property plans
☐ Investment plans
☐ Equity requirements
☐ Preferred loan features
☐ Future borrowing needs
Once you have these numbers, you can compare the overall outcome. If you decide to move ahead, it can also help to understand how to refinance a home loan and what the process involves.
FAQs About Refinancing Costs
Are refinancing costs tax deductible in Australia?
Some borrowing expenses may be deductible when the loan relates to an income-producing property. The treatment depends on how the borrowing is used, so private home loan expenses can receive different treatment.
Tax outcomes are subject to advice, check current ATO guidance or speak with a qualified tax professional before making a decision.
Do I have to refinance to another lender to get a better deal?
Not necessarily. Your current lender may be willing to review or reprice your loan. Comparing your existing loan with other options can help you determine whether switching lenders is actually worthwhile.
Will refinancing affect my ability to borrow for another property?
It can. The new lender, loan repayments, loan structure and overall debt position can all affect your future borrowing capacity. If you're planning to buy another property, consider those plans before choosing a refinance option.
Can I refinance if I have less than 20% equity?
It may be possible, but your loan-to-value ratio can affect the lenders and loan options available to you. You may also need to consider whether LMI applies under the new loan structure.
Is refinancing a lot of work?
There is some paperwork involved because the new lender needs to assess your application and the existing loan needs to be discharged. A broker can help coordinate the process and compare your options, which can make the process easier to manage.
Is Refinancing Worth It for You?
Refinancing could reduce your interest costs or improve your loan structure. The right decision depends on your numbers, circumstances and future plans.
Start with your current loan. Check the costs of leaving, the costs of switching and the savings you could achieve.
Then look beyond the rate. Consider your loan features, equity and future borrowing needs.
You don't need to refinance just because another lender offers a lower rate. You need to know whether switching puts you in a better position.
Find out whether refinancing makes sense for you
Amara Mortgage Brokers can review your current loan, refinancing costs and future lending goals.
If refinancing makes sense, we'll help you understand the options. If it doesn't, you'll have a clearer picture of why.
Disclaimer: The information provided is general in nature and does not take into account your objectives, financial situation or needs. Lending criteria, policies, rates and terms vary between lenders and may change without notice. All applications for credit are subject to lender approval and individual assessment. You should seek personalised advice before entering into any property or finance commitment.
Amara Mortgage Brokers is authorised under LMG Broker Services Pty Ltd (Australian Credit Licence 517192).