Refinancing is usually pitched as a rate chase. Find a lower number, move the loan, pocket the difference.
That’s one reason out of five, and it isn’t always the strongest. Plenty of borrowers refinance for a lower rate and end up worse off because they reset a 22-year loan back to 30. Others should have moved years ago and haven’t, because the saving looked too small to bother with.
The five reasons that hold up
A materially better rate. The test isn’t whether a lower rate exists. It’s whether the saving clears the switching costs within about 18 months and survives the loan term staying where it is.
Accessing equity. If your property has risen in value, refinancing can release equity for a renovation, an investment property deposit, or an investment portfolio. This is where refinancing stops being a cost exercise and starts being a strategy one.
Getting out of a product that doesn’t fit. No offset account, no redraw, a fee structure built for a borrower you no longer are. A loan taken out as a first home buyer is rarely the right loan eight years later.
Consolidating expensive debt. Credit cards and personal loans carry rates several times a mortgage. Folding them in reduces interest, with one significant caveat covered below.
Your circumstances have changed. Self-employment, a second income, a new dependant, an inheritance. Lenders read all of these differently, and the lender that suited your old file may not suit your new one.
When staying put is the better call
An honest broker will tell you not to move about as often as they tell you to.
- You’re close to the end of the term. Refinancing a loan with six years left onto a new 30-year term drops the monthly repayment and increases what you pay overall. If you refinance late in a loan, match the new term to the remaining one.
- Your equity is under 20%. Below that, lenders mortgage insurance applies again, and it’s rarely recoverable from the rate saving.
- You’re mid fixed term. Break costs during a fixed period can run into thousands. Wait for expiry, and read our guide on what to do when a fixed rate ends.
- Your income has recently changed. Lenders assess on demonstrable, stable income. Refinancing three months into self-employment is a harder application than refinancing at the two-year mark.
- The saving is inside the noise. A 0.1 percentage point improvement on a small balance won’t cover the costs.
What the switch costs
| Cost | Typical range |
|---|---|
| Discharge fee (old lender) | $150 to $400 |
| Application or establishment fee (new lender) | $0 to $600 |
| Valuation | $0 to $400, often waived |
| Settlement or legal fee | $100 to $300 |
| Break costs (fixed loans only) | Variable, can be thousands |
Most refinances land somewhere between a few hundred dollars and roughly $1,000, and lenders competing for refinance business frequently waive several of these or offer a cashback that covers them. On a $700,000 loan, a 0.3 percentage point improvement is about $2,100 a year, which clears typical switching costs in well under a year.
The debt consolidation trap
The arithmetic here misleads people.
Rolling a $30,000 personal loan at 12% into a mortgage at 6% looks like an obvious win, and on the interest rate it is. The problem is the term. That personal loan had four years left. The mortgage has 25. Halve the rate and multiply the term by six, and you can pay more interest in total while your monthly outgoing falls.
The fix is straightforward and almost nobody does it: consolidate, then keep paying the old combined repayment amount. You get the lower rate and the shorter term. The saving is real only if the repayment doesn’t drop to match the new minimum.
Structure matters more than the rate
If there’s any chance the property becomes an investment, or you’re weighing debt recycling, how the refinanced loan is split determines whether interest is deductible later.
Deductibility follows the purpose the borrowed funds were used for, not the property securing the loan. Redrawing from a home loan to buy shares creates a mixed-purpose loan that’s difficult to apportion and unpleasant at tax time. Splitting the loan properly at refinance costs nothing extra and keeps the two purposes cleanly separated.
This is the part a rate comparison site can’t do for you, and it’s the reason AGS runs broking alongside financial planning and accounting rather than as a standalone service.
Working out where you stand
Three numbers tell you most of it: your current rate, your remaining term, and your loan as a percentage of the property’s current value. With those, a broker can say within a conversation whether moving is worth pursuing.
AGS brokers work from all six offices, including Melbourne, North Sydney, Norwest and Brisbane.
Contact us with those three numbers and we’ll tell you whether moving is worth it.
Frequently asked questions
How much do I need to save for refinancing to be worth it? Enough to clear the switching costs within about 18 months. Discharge, application and valuation fees usually total a few hundred to around $1,000, so a saving of 0.3 percentage points or more on a typical loan generally clears that comfortably.
Does refinancing hurt my credit score? A single application has a minor, short-lived effect. Multiple applications in a short window do real damage, which is the main argument for having your file assessed against lender criteria before anything is lodged.
Can I refinance if my property has fallen in value? It depends on your remaining equity. If the loan is above 80% of the property’s current value you’ll usually need lenders mortgage insurance again, which often removes the benefit of moving.
Should I consolidate other debts into my mortgage? Sometimes, but with care. Moving a five-year personal loan onto a 25-year mortgage lowers the monthly payment and raises the total interest paid unless you keep the repayment at its old level.