Refinancing is one of those things everyone assumes they should do periodically - without always being clear on when it actually makes financial sense. Sometimes it saves thousands. Sometimes the costs outweigh the savings. Here’s a framework for thinking about it clearly.

Why People Refinance

The most common reasons borrowers refinance are:

  • Rate reduction: Their fixed term has ended and a competitor is offering a sharper rate
  • Cashback offers: Rare in Australia these days, though the occasional lender still runs one - never a reason to switch on its own
  • Debt consolidation: Rolling higher-interest debts into a mortgage to reduce total interest cost
  • Structure changes: Moving from interest-only to P+I, or restructuring to match a changed financial situation
  • Releasing equity: Accessing equity for renovations, investments, or other purposes

The Break-Even Calculation

Before refinancing, you need to understand the cost. If you’re refinancing a property at the end of a fixed term, there may be no break cost - you’re simply choosing a new term. But if you’re mid-fixed-term, the bank will charge a break cost.

Break costs are calculated based on the difference between your fixed rate and current wholesale interest rates for the remaining term. When interest rates have risen since you fixed, break costs are low or zero. When rates have fallen, break costs can be significant - sometimes $5,000–$20,000 for larger loans.

The break-even point is: break costs + switching costs ÷ monthly savings = months until you’re ahead.

If your break cost is $8,000 and refinancing saves you $400/month, your break-even point is 20 months. If you’re planning to sell in 18 months, it’s not worth it.

Switching Costs Beyond Break Fees

Beyond break costs, switching lenders involves:

  • Legal fees: Usually $1,000–$1,500 for the discharge and new mortgage registration
  • Valuation: Most lenders cover the valuation at no cost. With some smaller lenders a fee applies, typically $300 to $500
  • Cashback offset: If your current lender gave you cashback, check for a clawback provision. In Australia clawbacks are rare, but a few lenders do apply one if you leave within a set period

You generally won’t have a cashback to lean on, so the rate itself is what matters most over the life of the loan.

When Refinancing Makes Clear Sense

  • You’re at or near the end of your fixed term with no break cost
  • You have a significant rate difference (0.5% or more on a large loan) and you’re staying in the property long enough to break even
  • You’re consolidating high-interest debt at a material rate saving
  • Your switching costs are modest and the rate savings recover them quickly

When to Be Cautious

  • You’re deep in a fixed term with significant break costs
  • The rate difference is small relative to the costs
  • You’re planning to sell within 12–24 months
  • Your current lender’s service and relationship have genuine value you’d lose

What We Actually Do

When a client asks about refinancing, we model it properly - break costs, switching costs, rate savings, and the break-even timeline. We then lay out the numbers honestly. If staying makes more sense, we’ll tell you. If switching makes sense, we know which lenders are currently competitive - and we’ll flag a cashback offer on the rare occasion one is worth having.

Refinancing every two to three years when your fixed terms roll over is worth reviewing. Whether you actually switch each time depends on the numbers at that point - not on a rule of thumb.